Question

1. Presented below are selected account balances of Sandra Company at the end of its fiscal year on July 31, 2020: Rental revenue $ 8,000 Dividends paid $ 6,000 Interest expense 9,500 Selling expenses 50,000 Beginning retained earnings 6,400 Sales revenue 375,000 Dividend revenue 1,000 Cost of goods sold 110,000 Discontinued operations loss 3,000 Administrative expenses 30,000 Flood damage loss 4,500 Depreciation overstatement 2,000 Additional facts are as follows: i) The discontinued operations loss was after tax. ii) $2,000 (net of tax) stated above arose from an internal audit discovery of an error in the computation of depreciation expense in a prior year. ii) Applicable income tax rate for all items is 21%. iv) 100,000 shares of common stock were outstanding throughout the year. Instruction From the above figures and additional facts, prepare a multiple-step income statement and a retained earnings statement for the fiscal/financial year ended on July 31, 2020. Note: Be sure to display Earnings Per Share (EPS) as the bottom of the income statement 2. Explain the usefulness of an income statement to an investor/shareholder.

Answer 1

1)
Sandra Company
Income statement
For the Year Ended July 31, 2020
Sales revenue
Net sales revenue			$ 375,000.00
Cost of goods sold			$ 110,000.00
Gross profit			$ 265,000.00
Operating expenses
Selling expenses		$ 50,000.00
Administrative expenses		$ 30,000.00	$   80,000.00
Income from operations			$ 185,000.00
Other revenues and gains
Rent Revenue		$   8,000.00
Dividend revenue		$   1,000.00	$     9,000.00
			$ 194,000.00
Other expenses and losses
Loss from flood damage		$   4,500.00
Interest Expenses		$   9,500.00	$   14,000.00
Income from continuing operations before income tax		$ 180,000.00
Income tax @ 21%			$   37,800.00
Income from continuing operations			$ 142,200.00
Discontinued operations
Loss from operations, net of income tax recovery			$     3,000.00
Net Income			$ 139,200.00
Earnings per share:
)Income from continuing operations ($142,200/100,000		$            1.42
Discontinued operations (3000/100000)			$          (0.03)
Net income			$            1.39
Sandra Company
Statement of Retained Earnings
For the Year Ended July 31, 2020
Retained earnings balance, January 1, as reported	$        6,400.00
Correction for overstatement of net income in prior period (depreciation error) (net of tax )	$      (2,000.00)
Balance, January 1, as restated	$        4,400.00
Add: Net income	$    139,200.00
	$    143,600.00
Less: Dividends declared	$      (6,000.00)
Retained earnings balance, December 31	$    137,600.00