The income statement below was prepared by a new and inexperienced employee in t
ID: 2497424 • Letter: T
Question
The income statement below was prepared by a new and inexperienced employee in the accounting department of Dexter, Inc., a business organizaed as a corporation:
Dexter, Inc.
Income Statement
For Year Ended December 31, 2009
Net Sales.............................................$10,200,000
Gain on sale of treasury stock...................$56,000
Excess of issuance price over par value of capital stock..................710,000
Prior Period of adjustment (net of income tax).....................$80,000
Extraordinary gain (net of income tax)..........................$110,000
Total Revenue...............$11,156,000
Less:
Cost of Goods Sold................$4,000,000
Selling Expenses...................$1,050,000
General and Adminstrative Expenses.................$840,000
Loss from settlement of litigation..........................$10,000
Income tax on continuing operations.................$612,0000
Operation loss on discontinued operations (net of income tax benefit)........................$180,000
Loss on disposal of discontinued operations (net of income tax benefit)....................$240,000
Dividends declared on common stock........................................$300,000
Total costs and expenses.......................................................$7,232,000
Net Income............................................................................$3,924,000
Instructions:
A.) Prepare a corrected income statement for the year ended December 31, 2009. Include at the bottom of your income statement all appropriate earnings per share figures. Assume that throughout the year the comany had outstanding a weighted average of $500,000 shares of a single class of capital stock.
B.) Prepare a statement of retained earnings for 2009. (As originally reported, retained earnings at December 31, 2008, amount to $3,200,000)
C.) What does the $56,000 "Gain on sale of treasury stock" represent? How would you report this item in Dexter's financial statements at December 31, 2009?
Explanation / Answer
A Dexter Inc, Income statement For the year ended Dec31. 2009 Details Amt $ Net Sales 10,200,000 Less : Cost of goods sold 4,000,000 Gross profit 6,200,000 Opearting Expenses selling expenses 1,050,000 Gen & Admin expenses 840,000 Loss from settlemnt of litigation 10,000 Income before Tax 4,300,000 Income tax on continuing Opearion 612,000 Assumed typo in data given 612,0000 Profit after Tax-continuing opearion 3,688,000 Extra ordinary gain (net of IT) 110,000 Loss on disposal of discontinuing opeartion (net of IT benefit) 240,000 Opeartions loss not considered , only net loss on disposal taken Net Profit for the year 3,558,000 Weighted Average outsatnding Common Shares 500,000 EPS continuing operation $ 7.38 EPS Extra Ordinary Gain= $ 0.22 EPS Discontinued opearion $ (0.48) EPS net Income= $ 7.12 B Retained earning Statement For the year ended Dec31. 2009 Details Amt $ Opening Balance Jan 1.2009 3,200,000 Add : Prior period adjustment(net of tax) 80,000 Assuming it a gain Add : Transfer From P/L 3,558,000 Less : Dividend Paid 300,000 Retained Earning Closing Balance 6,538,000 $56,000 gain on sale of C Treasury stock is the additional procceds received over the cost of purchase of Treasury stock when the stocks are reissued. It is reported in the Paid -In-Capital in Addtion to Par value sub section of Equity balances in Balance sheet as Additional -Paid -In Capital from Treasury Stock Dexter Inc, Balance Sheet As on Dec31.2009 Equity section of balance Sheet Amt $ Additional Paid in Capital from Treasury Stock 56,000
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