178

Chapter 4

Income Statement and Related

Information

THOMPSON

CORPORATION

TRIAL BALANCE
DECEMBER 3 1 ,

2010

Debits
Purchase Discounts
Cash
Accounts Receivable
Rent Revenue
Retained Earnings
Salaries Payable
Sales
Notes Receivable
Accounts Payable
Accumulated DepreciationEquipment
Sales Discounts
Sales Returns
Notes Payable
Selling Expenses
Administrative Expenses
Share CapitalOrdinary
Income Tax Expense
Cash Dividends
Allowance for Doubtful Accounts
Supplies
Freight-in
Land
Equipment
Bonds Payable
Gain on Sale of Land
Accumulated DepreciationBuilding
Merchandise Inventory
Building
Purchases
Totals

Credits

10,000

189,700
105,000
18,000
160,000
18,000
1,100,000
110,000
49,000
28,000
14,500
17,500
70,000
232,000
99,000
300,000
53,900
45,000
5,000
14,000
20,000
70,000
140,000
100,000
30,000
19,600
89,000
98,000
610,000
1,907,600

1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of 64,000; thus, cost of
goods sold for 2010 is 645,000.
Instructions
Prepare an income statement and a retained earnings statement. Assume that the only changes in retained
earnings during the current year were from net income and dividends. Thirty thousand ordinary shares
were outstanding the entire year.
P4-4 (Income Statement Items) Maher Inc. reported income before income tax during 2010 of $790,000.
Additional transactions, occurring in 2010 but not considered in the $790,000 are as follows.
1.
2.

The corporation experienced an uninsured flood loss in the amount of $90,000 during the year.
At the beginning of 2008, the corporation purchased a machine for $54,000 (residual value of $9,000)
that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2008,2009, and
2010 but failed to deduct the residual value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in a gain of $47,000.
4. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that
this transaction meets the criteria for discontinued operations.
5. The corporation decided to change its method of i n v p n t n r v n r i r m r r f m , > , - ~ ~
T~>
5. The corporation decided to change its method of inventory pricing from average cost to the FIFO
method. The effect of this change on prior years is to increase 2008 income by $60,000 and decrease
2009 income by $20,000 before taxes. The FIFO method has been used for 2010.
Instructions
Prepare an income statement for the year 2010, starting with income before income tax. Compute earnings
per share as it should be shown on the face of the income statement. Ordinary shares outstanding for the
year are 120,000 shares. (Assume a tax rate of 30% on all items.)