Question

The following incorrect income statement was prepared by the accountant of the Axel Corporation: $720,000 45,000 92,000 857,000 AXEL CORPORATION Income Statement For the Year Ended December 31, 2021 Revenues and gains: Sales revenue Interest revenue Gain on sale of investments Total revenues and gains Expenses and losses: Cost of goods sold $390,000 Selling expense 72,000 Administrative expense 92,000 Interest expense 29,000 Restructuring costs Income tax expense 51,500 Total expenses and losses Net Income 68,000 702,500 $154,500 $ 1.55 Earnings per share

Answer 1

Answer

Axel corporation

   Income statement

    For the Year Ended 31st December, 2021

Sales revenue		720,000
Less cost of goods sold		390,000
Gross profit		330,000
Operating expenses
Restructuring costs	68,000
Administrative expense	92,000
Selling expense	72,000
Total operating expenses		232,000
Operating profit		98,000
Other income and expenses
Gain on sale of investment	92,000
Interest revenue	45,000
Interest expense	(29,000)
Total other income		108,000
Income before income tax		206,000
Less income tax expense		51,500
Net income		154,500

Income tax expense = income before income tax × tax rate

Income tax expense = 206,000 × 25% = $51,500.

Restructuring expense $68,000 is an operating expense. Interest revenue $45,000 and gain on sale of investment $92,000 are included in the non operating gain or loss section. Interest expenses $29,000 is a non operating expense.

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