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    Multiple-step Income, Retained Earnings

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    (Multiple-step Income, Retained Earnings) Presented blow is information related to American Horse Company for 2007
    Retained earnings balance, January 1, 2007 $980,000
    Sales for the year $25,000,000
    Cost of goods sold $17,000,000
    Interest revenue $70,000
    Selling and administrative Expenses $4,700,000
    Write-off of goodwill (not tax deductible) $820,000
    Income taxes for 2007 $905,000
    Gain on the sale of investments (normal recurring) $110,000
    Loss due to flood damage-extraordinary item (net of tax) $390,000
    Loss on the disposition of the wholesale division (net of tax) $440,000
    Loss on operations of the wholesale division (net of tax) $90,000
    Dividends declared on common stock $250,000
    Dividends declared on preferred stock $70,000

    Instructions
    Prepare a multiple-step income statement and a retained earnings statement. American Horse Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, American Horse sold the wholesale operations to Rogers Company. During 2007, During 2007, there were 300,000 shares of common stock outstanding all year.

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    Solution Preview

    Please see the attached file.

    American Horse Company
    Income Statement
    For the Year Ended December 31, 2007
    Sales $25,000,000
    Less cost of goods sold 17,000,000
    Gross profit 8,000,000
    Less selling and administrative expenses 4,700,000
    Income from operations 3,300,000
    Other revenues and gains
    Interest revenue $70,000
    Gain on the sale of investments 110,000 180,000
    Other ...

    Solution Summary

    The solution explains how to prepare a multiple-step income statement and a statement of retained earnings.

    $2.19

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