Question

Kruma Company sells clothes and fashion accessories through its chain of retail stores. The stockholders’ equity section of

Kruma Company’s statement of financial position as at December 31, 2018 shows the following information.

Kruma Company
Statement of Financial Position (Partial)
As at December 31, 2018
Stockholders’ Equity
Paid-In Capital
Preferred stock, noncumulative, 10%, $100 par value, 150,000 shares
authorized, 12,000 shares issued and outstanding	$1,200,000
Common stock, $1 par value, unlimited shares authorized,
400,000 shares issued and outstanding	400,000
Additional Paid-In Capital	1,200,000
Total Paid-In Capital	2,800,000
Retained Earnings	1,500,000
total stockholders’ equity	4,300,000

On January 28, 2019, Kruma discovered an accounting mistake made in 2018. Accrual of interest revenue was understated by $54,000 because interest receivable and interest revenue of $60,000 were mistakenly recorded as $6,000.

During 2019, Kruma earned and incurred the following revenue and expenses (excluding income tax expenses). Kruma’s tax rate is 30%.

Sales Revenue	$1,785,000
Interest Revenue	45,000
Unrealized Gain on Trading Investments	12,000
Gain on Sale of Discontinued Operations	90,000
Loss on Sale of Assets from Continuing Operations	16,000
Loss on Foreign Currency Translation	30,000
Loss from Operating Discontinued Operations	200,000
Cost of Goods Sold	966,000
Selling Expenses	250,000
Administrative Expenses	253,000
Interest Expense	1,000

On October 1, 2019, Kruma issued an additional 20,000 common shares for $100,000. There was no other change in the number of common or preferred shares. Kruma paid $120,000 dividends to preferred stockholders, but no dividend to common stockholders in 2019. The preferred shares are not convertible. The company does not have any outstanding securities that can be converted into common shares.

1. Record the journal entry to correct the mistake related to the understatement of interest receivable and interest revenue in 2018.

Date	Account Title and Explanation	Debit	Credit

b) Prepare a statement of comprehensive income under US GAAP for Kruma for the year ended December 31, 2019. Show detailed calculations of weighted average number of common shares and earnings per share in the space provided on the next page. Present the basic and diluted earnings per share calculated based on net income (loss) at the bottom of the statement of comprehensive income. Do not separate earnings per share into continuing operations and discontinued operations.

Date 2019	Actual Number of Shares	Fraction of Year	Weighted Average Number of Shares

Answer 1

Part A

Date	Account titles and explanation	Debit	Credit
Jan. 28, 2019	Interest receivable	54000
	Retained Earnings (balancing figure)		37800
	Income Tax Payable (54000*30%)		16200
	(to record correction for understatement of interest revenue accrual in 2018)

Part B

Kruma Company Statement of Comprehensive Income For the Year Ended December 31, 2019
Continuing Operations
Sales Revenue, Net		$ 1785000
Cost of Goods Sold		966000
Gross Profit		819000
Interest revenue		45000
Loss on Sale of Assets	16000
Salaries Expenses	250000
Depreciation Expense	174000
Miscellaneous Expense	80000	520000
Net Income before Tax		344000
Income Tax Expense		103200
Income from Continuing Operations		240800
Discontinued Operations
Loss from Discontinued Operations, Net of $33,000 of Income Tax Savings		77000
Net Income		163800
Other Comprehensive Income (Loss), Net of Income Tax
Foreign Currency Translation Difference	(21000)
Net Change in Fair Value of Investments	8400
Total Comprehensive Income		151200
Earnings per share
Basic and diluted		$0.11

Date 2019	Actual number of shares	Fraction of year	Weighted Average Number of Shares
Jan. 1	400000	X 12 / 12	400000
Oct. 1	20000	X 3 / 12	5000
	420000		405000

Earnings Per Share=Net Income − Preferred Dividends / Weighted Average Number of Common Shares Outstanding = (163800-120000)/405000 = $0.11