Big Sky: what is double tax, format an income statement, EPS
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Preparation of Income Statement and Retained Earnings Statement
Prepare an income statement and a statement of retained earnings for Big Sky Corporation for
the year ended June 30, 2006, based on the following information:
Capital stock (1,500 shares @ $100) . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000
Retained earnings, July 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,800
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500
Ski rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,900
Expenses:
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,600
Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,700
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 64,300
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Solution Summary
The solution presents a paragraph of explanation of the double tax problem with C corporations. Then an income statement and a statement of retained earnings are formated, and EPS is calculated.
Solution Preview
First, the 'double tax' issue: What that means is that dividends paid by a C Corporation are not deductible as an expense of the corporation. They are not expensed on the income statement. Since they are not an expense, but are taxable to the ...
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