Exercise 4-2 Presented below is information related to Blossom Company at Decemb

Question

Exercise 4-2 Presented below is information related to Blossom Company at December 31, 2017, the end of its first year of operations Sales revenue Cost of goods sold Selling and administrative expenses Gain on sale of plant assets Unrealized gain on available-for-sale investments Interest expense Loss on discontinued operations Dividends declared and paid $312,580 140,110 46,800 30,970 10,550 5,460 11,850 4,500 Compute the following: (a) Income from operations (b) Net income (c) Comprehensive income (d) Retained earnings balance at December 31, 2017

Explanation / Answer

a) To find income from operations

Gross profit = Sales revenue - cost of goods sold

Gross profit = $ 312,580 - $ 140,110

Gross profit = $172,470

Less ( selling and administrative expense) - $46,800

Add ( gain on sale of plant assets) + $ 30,970

Income from operations = $172,470 - $46,800 + $ 30,970

Income from operations = $ 156,590

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b) To find net income

Income from operation = $ 156,590

less : Interest expense ( $ 5460)

Income before income tax = $ 151,130

Less : Loss on discontinued operations ( $ 11,850)

Net Income = $ 139,280

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C) Comprehensive income = Net income + unrealized gain on available for sale investments

Comprehensive income = $ 149,830

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d) Retained earnings = Net Income - dividends declared and paid

Retained earnings = $ 139,280 - $ 4500

Retained earnings = $ 134,780

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