AP-17

Lincoln Inc.'s financial accounts contained the following amounts for the period ending
December 31, 2010. Prepare an income statement for the year ended December 31,
2010. Assume the tax rate is 30%.
Cost of Goods Sold
Gain on Sale of Capital Assets
Operating Expenses
Operating Income from Discontinued Operations
Sales Revenue

$1,560,000
$13,000
$520,000
$260,000
$2,600,000

Lincoln Inc.
Income Statement
For the period ending December 31, 2010
Revenues
Sales Revenue
Cost of Goods Sold
Gross Profit

$2,600,000
$1,560,000
$1,040,000

Operating Expenses
Operating Income

$520,000
$520,000

Other Revenue and Expenses

Gain on Sale of Capital Assets
Income before Tax
Less: Income Tax Expense
Income from Continuing Operations
Discontinued Operations
Operating Income
Less: Income Tax Expense
Net Income

$13,000
$533,000
-$159,900
$373,100

$260,000
-$78,000

$182,000
$555,100

AP-18
Jodeci Inc.'s financial accounts contained the following amounts for the period ending
December 31, 2010. Prepare a multi-step income statement for the year ended
December 31, 2010.
Cost of Goods
Sold
Gain on Sale of Capital
Assets

$2,100,0
00

Income before Income Tax

Income from Continuing Operations
Income Tax
Expense
Income Tax Expense on Operating Income from Discontinued
Operations
Interest Expense
Net Income
Operating
Expenses
Operating
Income
Operating Income from Discontinued
Operations
Sales Revenue

$7,500
$954,50
0
$763,60
0
$190,90
0
$45,000
$3,000
$943,60
0
$400,00
0
$950,00
0
$225,00
0
$3,450,0
00

Jodeci Inc.
Income Statement
For the period ending December 31, 2010
Reven
ues
$3,450,0
00
$2,100,0
00
$1,350,0
00

Sales Revenue
Cost of Goods
Sold
Gross Profit
Operating
Expenses
Operating
Income
Other Revenue and
Expenses
Gain on Sale of Capital
Assets
Interest Expense
Income before Income Tax

$400,00
0
$950,00
0

$7,500
$3,000

$4,500
$954,50

0
$190,90
0
$763,60
0

Less: Income Tax Expense

Income from Continuing Operations
Discontinued
Operations
Operating Income from Discontinued
Operations

$225,0
00
$45,00
0

Less: Income Tax Expense

Net Income

$180,00
0
$943,60
0

AP-19
The following, is the financial information for Melvana Inc. for the year ending
December 31, 2010
Sales Revenue
Gross Profit
Operating Income
Income tax expense
Income from continuing
operations

Net Income
Opening Retained
Earnings, Jan 1
Ending Retained Earnings,
Dec 31
Use the above information to
determine:
(a) Cost of Goods Sold

$500,0
00
$250,0
00
$145,0
00
$25,50
0
$59,50
0
$177,0
00
$145,0
00
$316,0
00

COGS
Total Operating Expenses
Income before income tax
Dividen
ds
Sales Revenue
Less: Sales Discounts
Depreciation
Wages
Interest Expense

$250,0
00
$105,0
00
$85,00
0
$6,000
$500,0
00
$0
$40,00
0
$65,00
0
$60,00
0

Sales Revenue minus COGS = Gross Profit. Therefore, COGS = $500000 $250000 = $250000

(b) Total operating

expenses
Gross Profit minus Total operating expenses = Operating Income. Therefore, Total
operating expenses = $250000 - $145000 = 105000

(c) Income before income

tax
Income before income tax - Income tax expense = Income from continuing operations.
Therefore, Income before income tax = $59500 + $25500 = $85000

(d) Dividends for the year

Net income + Opening Retained Earning - Dividends = Ending Retained Earnings.

Therefore, Dividends = $177000 + $145000 - $316000 = $6000

(e) In addition to the financial information shown in the table above, suppose that
operating income from discontinued operations is $120,000 and the gain on sale of
assets from discontinued operations is $47,857. Note that the only operating expenses
are wages of $65,000 and depreciation expense of $40,000. Interest expenses amount
to $60,000. The tax rate is 30%.
47857.
120000
14
(i) Calculate the income tax expense due to
discontinued operations.
Operating Income from Discontinued
Operations
Gain on Sale of Assets from Discontinued
Operations

$120,0
00
$47,85
7

Income Tax Expense (30%)

$167,8
57
$50,35
7

(ii) Prepare an income

statement.
Melvana Inc.
Income Statement
For the year ending December 31, 2010
$500,0
00
$250,0
00
$250,0
00

Sales Revenue
COGS
Gross Profit
Operating Expenses
Wages
Depreciation
Total Operating Expenses

$65,000
$40,000
$105,00
0

Operating Income
Other Revenues and Expenses
Interest Expense

$60,000

Income before income tax

Income tax expense
Income from continuing operations
Discontinued Operations
Operating Income from Discontinued Operations
Gain on Sale of Assets from Discontinued Operations
Less: Income tax expense (30%)
Net Income

$105,0
00
$145,0
00
$60,00
0
$85,00
0
$25,50
0
$59,50
0

$120,00
0
$47,857
-$50,357

$117,5
00
$177,0
00

AP-20
Varghese Inc. prepared the following income statement for the year ended
September 30, 2011.
Varghese Inc.
Income Statement
For the Year Ended September
30, 2011
$400,0
Sales Revenue
00
$160,0
Less Cost of Goods Sold
00
$240,0
Gross Profit
00
Expens
es
Insuran
ce
Maintenance
Rent
Professional Fees
Salaries &
Bonuses
Telepho
ne
Travel

$15,00
0
$12,00
0
$30,00
0
$1,000
$65,00
0

Depreciation

$6,500
$1,200
$16,00
0

Total Expenses

$146,7
00

Net Income
(Loss)

$93,30
0

Retained earnings as at October 1, 2010 was $250,000. The company

declared $30,000 in dividends during the year ended September 30, 2011.
Prepare a statement of retained earnings for the year.
Varghese Inc.
Statement of Retained Earnings
For the Year Ended September 30, 2011

Retained Earnings, Oct 1,

2010
Net Income for current
year
Less: Dividends
Retained Earnings, Sept
30, 2011

$250,0
00
93,300
(30,00
0)
$313,3
00