Olson Corporation's capital structure consists of 40,000 ...



Olson Corporation's capital structure consists of 40,000 shares of

common stock. At December 31, 2004, an analysis of the accounts and

discussions with company officials revealed the following

information:

Sales $1,400,000

Purchase discounts 18,000

Purchases 820,000

Earthquake loss (net of tax) (extraordinary item) 42,000

Selling expenses 128,000

Cash 60,000

Accounts receivable 90,000

Common stock 200,000

Accumulated depreciation 180,000

Dividend revenue 8,000

Inventory, January 1, 2004 152,000

Inventory, December 31, 2004 125,000

Unearned service revenue 4,400

Accrued interest payable 1,000

Land 370,000

Patents 100,000

Retained earnings, January 1, 2004 270,000

Interest expense 17,000

Cumulative effect of change from straight-line to

accelerated depreciation (net of tax) 28,000

General and administrative expenses 210,000

Dividends declared 29,000

Allowance for doubtful accounts 5,000

Notes payable (maturity 7/1/07) 200,000

Machinery and equipment 450,000

Materials and supplies 40,000

Accounts payable 60,000

The amount of income taxes applicable to ordinary income was

$67,200, excluding the tax effect of the earthquake loss which

amounted to $18,000 and the tax effect of the change of accounting

principle which was $12,000.

INSTRUCTIONS

(a) Prepare a multiple-step income statement.

(b) Prepare a retained earnings statement.

a)

|Olson Corporation |

|Income Statement |

|For the Year Ended December 31, 2004 |

|Sales |  |$1,400,000 |

|Cost of Goods Sold |  |  |

|Merchandise Inventory, Jan. 1 |$152,000 |  |

|Purchases |$820,000 |  |

|Less: Purchase Discounts |($18,000) |  |

|Net Purchases |$802,000 |  |

|Merchandise Available for Sale |$954,000 |  |

|Less: Merchandise Inv. Dec. 31 |($125,000) |  |

|Cost of Goods Sold |  |$829,000 |

|Gross Profit on Sales |  |$571,000 |

|Operating Expenses: |  |  |

|Selling Expense |$128,000 |  |

|General & Administrative Expense |$210,000 |  |

|Total Operating Expenses |  |$338,000 |

|Operating Income |  |$233,000 |

|Other Revenues & Expenses: |  |  |

|Dividend Revenue |$8,000 |  |

|Interest Expense |($17,000) |  |

|Income before Taxes |  |$224,000 |

|Income Taxes |  |$67,200 |

|Income before Extraordinary Items & Cumulative Effect of Accounting Change |  |$156,800 |

|Extraordinary Loss Due to Earthquake, Net of $18,000 Taxes |($42,000) |  |

|Cumulative Effect of Changes in Depreciation Methods, Net of $12,000 Taxes |($28,000) |  |

|Net Income |  |$86,800 |

|Per Share of Common Stock (40,000 shares Outstanding) |  |  |

|Income before Extraordinary Items & Cumulative Effect of Accounting Change |$3.92 |  |

|Extraordinary Loss Due to Earthquake, Net of $18,000 Taxes |($1.05) |  |

|Cumulative Effect of Changes in Depreciation Methods, Net of $12,000 Taxes |($0.70) |  |

b)

|Olson Corporation |

|Retained Earnings Statement |

|For the Year Ended December 31, 2004 |

|Retained Earnings, Beginning |$270,000 |

|Add: Net Income |$86,800 |

|Less: Dividends Declared |($29,000) |

|Retained Earnings, Ending |$327,800 |

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