The income statement below was prepared by a new and inexperienced employee in the accounting department of Dexter, Inc., a business organized as a corporation:
DEXTER, INC. Income Statement For the Year Ended December 31, 2007 | ||
Net sales |
| $10,200,000 |
Gain on sale of treasury stock |
| 56,000 |
Excess of issuance price over par value of capital stock |
| 710,000 |
Prior period adjustment (net of income tax) |
| 80,000 |
Extraordinary gain (net of income tax) |
| 110,000 |
Total revenue |
| $11,156,000 |
Less: |
|
|
Cost of goods sold | $4,000,000 |
|
Selling expenses | 1,050,000 |
|
General and administrative expenses | 840,000 |
|
Loss from settlement of litigation | 10,000 |
|
Income tax on continuing operations | 612,000 |
|
Operating loss on discontinued operations (net of income tax benefit) | 180,000 |
|
Loss on disposal of discontinued operations (net of income tax benefit) | 240,000 |
|
Dividends declared on common stock | 300,000 |
|
Total costs and expenses |
| 7,232,000 |
Net income |
| $ 3,924,000 |
Instructions
a. Prepare a corrected income statement for the year ended December 31. 2007, using the format illustrated in Exhibit 12-2. Include at the bottom of your income statement all appropriate earnings per share figures. Assume that throughout the year the company had outstanding a weighted average of 500,000 shares of a single class of capital stock.
b. Prepare a statement of retained earnings for 2007. (As originally reported, retained earnings at December 31, 2006, amount to $3,200,000.)
c. What does the $56,000 "Gain on sale of treasury stock" represent? How would you report this item in Dexter's financial statements at December 31, 2007?
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