(Multiple-step Statement with Retained Earnings) Presented ...



(Multiple-step Statement with Retained Earnings) Presented below is information related to Ivan Calderon Corp. for the year 2007.

Net sales

     $1,300,000

     Write-off of inventory due to obsolescence

     $ 80,000

Cost of goods sold

     780,000

     Depreciation expense omitted by accident in 2006

     55,000

Selling expenses

     65,000

     Casualty loss (extraordinary item) before taxes

     50,000

Administrative expenses

     48,000

     Cash dividends declared

     45,000

Dividend revenue

     20,000

     Retained earnings at December 31, 2006

     980,000

Interest revenue

     7,000

     Effective tax rate of 34% on all items

     

Instructions

   1. Prepare a multiple-step income statement for 2007. Assume that 60,000 shares of common stock are outstanding.

   2. Prepare a separate retained earnings statement for 2007.

|(a) Ivan Calderon Corp. |

|Income Statement |

|For the Year Ended December 31, 2007 |

|Sales Revenue | | |

| Net sales | |$1,300,000 |

| Cost of goods sold | | (780,000) |

| Gross profit on sales | | 520,000 |

| | | |

|Operating Expenses | | |

| Selling expenses |$65,000 | |

| Administrative expenses | 48,000 | (113,000) |

|Income from operations | |407,000 |

| | | |

|Other Revenues and Gains | | |

| Dividend revenue |20,000 | |

| Interest revenue | 7,000 | 27,000 |

| | |434,000 |

|Other Expenses and Losses | | |

| Write-off of inventory due to obsolescence |80,000 | |

| Casualty loss | 50,000 | (130,000) |

| | | |

|Income before income tax | |304,000 |

| Income tax | | (103,360) |

|Net income | |$ 200,640 |

|(b) Ivan Calderon Corp. |

|Retained Earnings Statement |

|For the Year Ended December 31, 2007 |

|Retained earnings, Jan. 1, as reported |$ 980,000 |

|Correction for overstatement of net income in prior period | |

|(depreciation error) (net of $18,700 tax) |(36,300) |

|Retained earnings, Jan. 1, as adjusted | 943,700 |

|Add: Net income | 200,640 |

| | 1,144,340 |

|Less: Dividends declared | (45,000) |

|Retained earnings, Dec. 31 |$1,099,340 |

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