The income statement below was prepared by a new and inexperienced employee in the accounting department of Phoenix. Inc., a business organized as a corporation.
PHONEIX, Inc, Income Statement For the Year Ended December 31, 2007 | ||
Net sales |
| $10,800,000 |
Gain on sale of treasury stock |
| 62,000 |
Excess of issuance price over par value of capital stock |
| 510,000 |
Prior period adjustment (net of income tax) |
| 60,000 |
Extraordinary gain (net of income tax) |
| ____36,000 |
Total revenue |
| $11,468,000 |
Less: |
|
|
Cost of goods sold | $6,000,000 |
|
Selling expenses | 1,104,000 |
|
General and administrative expenses | 1,896,000 |
|
Loss from settlement of litigation | 24,000 |
|
Income tax on continuing operations | 720,000 |
|
Operating loss on discontinued operations (net of income tax benefit) | 252,000 |
|
Loss on disposal of discontinued operations (net of income tax benefit) | 420,000 |
|
Dividends declared on common stock | 350,000 |
|
Total costs and expenses |
| __10,766,000 |
Net income |
| ___$ 702,000 |
Instructions
a. Prepare a corrected income statement for the year ended December 31, 2007, using the format illustrated in Exhibit 12-2. Include at the bottom of your income statement all appropriate s earnings-per-share figures. Assume that throughout the year the company had outstanding a weighted average of 180,000 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, amounted to $2,175,000)
c. What does the $62,000 "gain on sale of treasury stock" represent? How would you report this item in Phoenix's financial statements at December 31, 2007?
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