Selected data of Ace Company for the year ended 2009 December 31, are:
|
Sales, net |
$1,000,000 |
|
Interest expense |
90,000 |
|
Cash dividends on common stock |
150,000 |
|
Selling and administrative expenses |
245,000 |
|
Cash dividends on preferred stock |
70,000 |
|
Rent revenue |
400,000 |
|
Cost of goods sold |
650,000 |
|
Flood loss (has never occurred before) |
200,000 |
|
Interest revenue |
90,000 |
|
Other revenue |
150,000 |
|
Depreciation and maintenance on rental equipment |
270,000 |
|
Stock dividend on common stock |
300,000 |
|
Operating income on Plastics Division up to point of sale in 2009 |
50,000 |
|
Gain on disposal of Plastics Division |
25,000 |
|
Litigation loss (has never occurred before) |
400,000 |
|
Cumulative positive effect on prior years” income of changing to a |
80,000 |
|
different depreciation method |
|
Assume the applicable federal income tax rate is 40 percent. All of the preceding items of expense, revenue, and loss are included in the computation of taxable income. The litigation loss resulted from a court award of damages for patent infringement on a product that the company produced and sold in 2005 and 2006, but was discontinued in 2006. In addition, the company discovered that in 2005 it had erroneously charged to expense the USD 250,000 cost of a tract of land purchased that year and had made the same error on its tax return for 2008. Retained earnings as of 2009 January 1, were USD 5,600,000. Assume there were 10,000 shares of common stock and 5,000 shares of preferred stock outstanding for the entire year.
Prepare an income statement and a statement of retained earnings for 2009.