Question

Alpine Realty, Inc., organized July 1, 20Y8, is operated by Angela Griffin. The financial statements it has prepared as of July 31, 20Y8 contain errors. ALPINE REALTY, INC. Income Statement July 31, 20Y8 Sales commissions $60,000 Operating expenses: Office salaries expense $20,000 Rent expense 6,000 Automobile expense 3,500 Dividends 2,000 Miscellaneous expense 1,500 Total operating expenses (33,000) Net income $27,000

Answer 1

Answer

• The main error in the Income Statement given is that “Dividend” has been included as “Expense” Item.
• Dividends are not shown in Income Statements.
• They are considered to be an appropriation of Net Income, and are deducted under Statement of Retained earnings.
• Correct Income Statement would be:

Income Statement
for the month ending 31 Jul 20Y8
Revenues:
Sales Commissions		$60,000
Operating Expenses:
Office Salaries expense	$20,000
Rent Expense	$6,000
Automobile expense	$3,500
Miscellaneous Expense	$1,500
Total Operating Expenses		$31,000
Net Operating Income or Income from Operations		$29,000