Preparing an Income Statement for L Company
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L Company's accounting system listed the following information for the company's 2007 fiscal year (in millions).
Average common shares outstanding 2.5
Cost of goods sold $173.2
Extraordinary gain 19.4
Gain on sale of securities 7.4
General and administrative expenses 73.3
Income taxes (35% of pretax income)
Interest expense 10.0
Interest Income 5.7
Loss associated with cumulative effect
of accounting change 4.0
Loss from discontinued operations 12.3
Sales of merchandise 318.6
Selling expenses 28.5
**Prepare an income statement for L Company for the year ended December 31, 2007. Assume that the tax rate of 35% applies to special items as well as ordinary income.
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Solution Summary
Soution prepares an income statement for one year with a tax rate of 35% on special items and ordinary income.
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This question tests your ability to properly arrange items on the income statement. In general, an income statement should follow the following format:
Sales/revenues
- Cost of goods sold
= Gross profit
- Selling and administrative expenses
= Income from operation (or operating income)
+ other revenues or gains
- other expenses or losses
= income from continuing operations before income tax
- income tax
= income from continuing operations
+ income/- losses from discontinuing operations
= income before extraordinary item
+ gain/ - losses from extraordinary item
= net income
Extraordinary item include anything that is, well, extraordinary that a reasonable business management will not arrange for such event in advance. Some examples of those events include nature disasters or ...
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