Problem

Reporting Unusual Events: A Comprehensive ProblemThe income statement below was prepared b...

Reporting Unusual Events: A Comprehensive Problem

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, 2015

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

 

10,766,000

Net income

 

$ 702,000

Instructions

a. Prepare a corrected income statement for the year ended December 31, 2015, 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 2015. (As originally reported, retained earnings at December 31, 2014, 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, 2015?

EXHIBIT 12–2 Earnings Per Share Presentation

PERRY CORPORATION

CONDENSED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2015

Net sales

$ 9,115,000

Costs and expenses (including tax on continuing operations)

8,310,000

Income from continuing operations

$ 805,000

Loss from discontinued operations (net of income tax benefits)

(90,000)

Income before extraordinary items

$ 715,000

Extraordinary loss (net of income tax benefit)

$ (120,000)

Net income

$ 595,000

Earnings per share of common stock:

 

Earnings from continuing operations

$3.67a

Loss from discontinued operations

(0.45)

Earnings before extraordinary items

$3.22b

Extraordinary loss

(0.60)

Net earnings

$2.62c

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