Question

Exercise 4-9

Presented below is information related to Pearl Corp. for the year 2017.

Net sales		$1,392,100		Write-off of inventory due to obsolescence		$81,030
Cost of goods sold		780,300		Depreciation expense omitted by accident in 2016		45,000
Selling expenses		74,600		Casualty loss		51,800
Administrative expenses		52,500		Cash dividends declared		41,740
Dividend revenue		27,800		Retained earnings at December 31, 2016		889,370
Interest revenue		7,120		Effective tax rate of 34% on all items

Prepare a multiple-step income statement for 2017. Assume that 55,620 shares of common stock are outstanding Prepare a separate retained earnings statement for 2017.

Answer 1

A) multiple-step income statement for 2017

Particular	amount
Sales (net)	$1392100
Less: cost of goods sold	($780300)
Gross income	$611800
Less: operating expenses (selling and administrative expenses)	($127100)
Operating income	$484700
Add: dividend revenue	$27800
Add: interest revenue	$7120
Total operating and non-operating income	$519620
Less: write off inventory	($81030)
Less: casualty loss	($51800)
Earning before tax	$386790
Less: tax (34% of $386790)	($131508.6)
Earning after tax/ net income	$255281.4

Conclusion:- Total Net income = $ 255281.4 and Earnings Per Share = 255281.4/55620 = $4.59 per Share.

B)

Retained earning statement for 2017

Particular	amount
Opening adjusted balance of retained earnings (Note 1)	$859670
Add: net income	$255281.4
Less: dividend declared	($41740)
Closing balance of retained earnings as on December 31, 2017	$1073211.4

Note 1) :- Opening adjusted balance of retained earnings=

=$889370 - [$45000 × (1-0.34)]

= $889370 - $29700

= $859670

Conclusion:- Closing balance of retained earnings as on December 31, 2017 = $1073211.4

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