Question

Problem 4-01 

The following information is related to Dickinson Company for 2020 

$$ \begin{array}{lr} \text { Retained earnings balance, January } 1,2020 & \$ 980,000 \\ \text { Sales Revenue } & 25,000,000 \\ \text { Cost of goods sold } & 16,000,000 \\ \text { Interest revenue } & 70,000 \\ \text { Selling and administrative expenses } & 4,700,000 \\ \text { Write-off of goodwill } & 820,000 \\ \text { Income taxes for } 2020 & 1,244,000 \\ \text { Gain on the sale of investments } & 110,000 \\ \text { Loss due to flood damage } & 390,000 \\ \text { Loss on the disposition of the wholesale division (net of } \operatorname{tax}) & 440,000 \\ \text { Loss on operations of the wholesale division (net of } \operatorname{tax}) & 90,000 \\ \text { Dividends declared on common stock } & 250,000 \\ \text { Dividends declared on preferred stock } & 80,000 \end{array} $$

Dickinson Company decided to discontinue its entire wholesale operations considered a discontinued operation) and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2020, there were 500,000 shares of common stock outstanding all year.

Answer 1

Answer -

Income statement:

Dickinson Company
Income Statement
For the Year Ended December 31, 2020
Sales revenue		$25000000
Cost of goods sold		($16000000)
Gross profit (loss)		$9000000
Selling and administrative expenses		($4700000)
Income from operations		$4300000
Other revenue and gains
Interest revenue	$70000
Gain on the sale of investments	$110000
		$180000
Other expenses and losses
Write-off of goodwill	($820000)
Loss from flood damage	($390000)
		($1210000)
Income from continuing operations before income tax		$3270000
Income tax		($1244000)
Income from continuing operations		$2026000
Discontinuing operations
Loss on operations, net of applicable tax	($90000)
Loss on disposal, net of applicable tax	($440000)
		($530000)
Net income (loss)		$1496000
Earnings per share:
Income from continuing operations		$3.892
Discontinuing operations
Loss on operations, net of applicable tax	($0.18)
Loss on disposal, net of applicable tax	($0.88)
		($1.06)
Net income (loss)		$2.832

Calculation:

1. Income from continuing operations per share:

= [(Income from continuing operations - Dividend declared on preferred stock) / Number of shares outstanding]

= [($2026000 - $80000) / 500000 shares]

= $3.892

2. Loss on operations, net of applicable tax per share:

= [Loss on operations, net of applicable tax / Number of shares outstanding]

= [$90000 / 500000 shares]

= $0.18

3. Loss on disposal, net of applicable tax per share:

= [Loss on disposal, net of applicable tax / Number of shares outstanding]

= [$440000 / 500000 shares]

= $0.88

4. Discontinuing operations per share:

= Loss on operations, net of applicable tax per share + Loss on disposal, net of applicable tax per share

= $0.18 + $0.88

= $1.06

Retained earnings statement:

Dickinson Company
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained Earnings, January 1		$980000
Add: Net income (loss)		$1496000
		$2476000
Less:
Dividends-Preferred stock	($80000)
Dividends-Common stock	($250000)
		($330000)
Retained Earnings, December 31		$2146000

Note - Showing minus figures (negative numbers) in parentheses.