Q6E - Intermediate Accounting (Kieso)

Question

(Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December 31, 2017. 

Interest revenue       \(86,000 Accumulated depreciation equipment \)40,000

Cash                                \(51,000    Accumulated depreciation—buildings \)28,000

Sales revenue                 \(1,380,000 Notes receivable               \)155,000

Accounts receivable      \(150,000 Selling expenses                          \)194,000            

Prepaid insurance          \(20,000 Accounts payable               \)170,000

Sales returns and allowances \(150,000  Bonds payable                          \)100,000

Allowance for doubtful accounts \(7,000 Administrative and general expense \)97,000

Sales discounts                \(45,000 Accrued liabilities                  \)32,000                       

Land                                 \(100,000 Interest expense                   \)60,000                        

Equipment                       \(200,000 Notes payable \)100,000

Buildings                          \(140,000 Loss from earthquake damage \)150,000

Cost of goods sold          \(621,000 Common stock                  \)500,000                    

                                                                         Retained earnings              $21,000        

Assume the total effective tax rate on all items is 34%. 

Instructions

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.    

Step-by-Step Solution

Answer

The earnings per share of Alonzo Corporation is $0.98.

Meaning of Cost of Goods Sold

Cost of Goods sold means the direct cost related to the production of goods by a company. All the direct cost of material and labor is included in calculating the cost of goods sold.

Preparing Multiple Step Income Statement

Alonzo Corporation
Multiple-Step Income statement
For the Year Ended December 31, 2017
Sales
Sales Revenue		$1,380,000
Less:
Sales Returns and Allowances	150,000
Sales Discounts	45,000	195,000
Net Sales		1,185,000
Cost of Goods Sold		621,000
Gross Profit/(Loss)		564,000
Operating Expenses
Selling Expenses	194,000
Administrative Expenses	97,000
Total Operating Expenses		291,000
Income From Operations		273,000
Other Revenues and Gains
Interest Revenue		86,000
Other Expenses and Losses
Loss from Earthquake Damage	150,000
Interest Expense	60,000	210,000
Income before Income Tax		149,000
Income Tax Expenses		50,660
Net income/(Loss)		98,340
Earnings per Share		$0.98

Working Notes:

1. Calculation of Earnings per share

$\begin{array}{rcl}\mathbf{Earnings}\mathbf{ }\mathbf{per}\mathbf{ }\mathbf{share}& \mathbf{=}& \mathbf{Net}\mathbf{ }\mathbf{Income}\mathbf{÷}\mathbf{Outstanding}\mathbf{ }\mathbf{Common}\mathbf{ }\mathbf{Stock}\\ & \mathbf{=}& \mathbf{\$}\mathbf{98}\mathbf{,}\mathbf{340}\mathbf{÷}\mathbf{100}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{shares}\\ & \mathbf{=}& \mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{98}\end{array}$