Question

5. The following information was taken from the records of Cartoons Inc. for the year 2020: • Income tax applicable to income from continuing operations $261,800; Income tax applicable to loss on discontinued operations 535,700; Income tax applicable to unusual gain $45,220: Income tax applicable to unusual loss $28,560; and Unrealized holding gain on available-for-sale securities $21,000. Unusual gain Loss on discontinued operations Administrative expenses Rent revenue Unusual loss $ 133,000 105,000 336,000 56,000 84,000 Cash dividends declared Retained earings January 1, 2020 Cost of goods sold Selling expenses Sales $ 210,000 840,000 1,190,000 420,000 2,660,000 Shares outstanding during 2020 were 100,000. Required: (a) Prepare a single-step income statement for 2020. (b) Prepare a retained earnings statement for 2020. (c) Show how comprehensive income is reported using the two-statement format.

Answer 1

Answer :

(a) cartoons INC.
	Income Statement
	For the Year Ended December 31, 2020
	Revenues
	Sales...........................................................................................		$2,660,000
	Rent revenue		56,000
	Total revenues.................................................................		2,716,000
	Expenses
	Cost of goods sold..........................................................		1,190,000
	Selling expenses..............................................................		420,000
	Administrative expenses.................................................		336,000
	Total expenses..................................................		1,946,000
	Income from continuing operations before     Income taxes........................................................................		770,000
	Income taxes...................................................................		261,800
	Income from continuing operations.........................................		508,200
	Discontinued operations
	Loss on discontinued operations.....................................	$105,000
	Less:  Applicable income tax reduction..........................	35,700	69,300
	Income before extraordinary items..........................................		438,900
	Extraordinary items:
	Extraordinary gain...........................................................	133,000
	Less:  Applicable income tax...........................................	45,220	87,780
			526,680
	Extraordinary loss............................................................	84,000
	Less:  Applicable income tax reduction...........................	28,560	55,440
	Net income		$   471,240
	Per share of common stock:
	Income from continuing operations            ($508,200 ÷ 100,000)...........................................................	$5.08
	Loss on discontinued operations, net of tax............................	(0.69)
	Income before extraordinary items            ($438,9000 ÷ 100,000).........................................................	4.39
	Extraordinary gain, net of tax..................................................	0.88
	Extraordinary loss, net of tax..........................................		(0.56)
	Net income  ($471,240 ÷ 100,000)..................................		$4.71

(b) cartoons INC.
	Statement of Comprehensive Income
	For the Year Ended December 31, 2020
	Net income...........................................................................		$471,240
	Other comprehensive income
	Unrealized holding gain.................................................		21,000
	Comprehensive income  ...............................................................................		$492,240

(c) cartoons INC.
	Retained Earnings Statement
	For the Year Ended December 31, 2020
	Retained earnings, January 1, 2014.....................................		$   840,000
	2014 Net income..................................................................		471,240
			$1,311,240
	Dividends declared..............................................................		(210,000)
	Retained earnings, December 31, 2020...............................		$1,101,240