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    Business Help: Income statement

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    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.


    (a) Prepare a multiple-step income statement.
    (b) Prepare a retained earnings statement.

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    Solution Summary

    The solution explains how to prepare an income statement and a statement of retained earnings.