Corrected Income Statement
A newly hired staff accountant prepared the pre audit income statement of Jericho Recreation Incorporated for the year ending December 31, 2008.
|
Net revenues |
|
$797,000 |
|
Cost of goods sold |
|
300,800 |
|
Gross profit |
|
$496,200 |
|
Expenses: |
|
|
|
Sales salaries and commissions |
$160,000 |
|
|
Officers’ and office salaries |
210,000 |
|
|
Depreciation |
56,000 |
|
|
Advertising expense |
13,400 |
|
|
Other general and administrative expenses |
38,80 |
|
|
|
|
478,200 |
|
Income from continuing operations |
|
$18,000 |
|
Discontinued operations: |
|
|
|
Gain on disposal of business segment |
|
40,000 |
|
Income before income taxes |
|
$58,000 |
|
Income taxes (30%) |
|
17,400 |
|
Net income |
|
$40,600 |
|
Earnings per common share (10,000 shares outstanding) |
|
$406.00 |
The following information was obtained by Jericho’s independent auditor.
(a) Net revenues in the income statement included the following items.
|
Sales returns and allowances |
$ 9,500 |
|
Interest revenue |
6,600 |
|
Interest expense |
10,600 |
|
Loss on sale of short term investment |
3,000 |
|
Extraordinary gain |
16,000 |
(b) Of the total depreciation expense reported in the income statement, 60% relates to stores and store equipment, 40% to office building and equipment.
(c) At the beginning of 2008, management decided to close one of Jericho’s retail stores. Jericho is a large company and does not attempt to prepare complete financial reports for each individual store. The inventory and equipment were moved to another Jericho store, and the land and building were sold on July 1, 2008, at a pretax gain of $40,000.This amount has been reported under discontinued operations.
(d) The income tax rate is 30%.
Instructions:
Prepare a corrected multiple step income statement for the year ended December 31, 2008.