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Unformatted text preview: P6-3 Interim ReportingThe Schultz Company prepares interim financial statements at the end of each quarter. The income statement presented at the end of thefirst quarter of 2010 is as follows:Sales (net)$40,000 Cost of goods sold(23,000)Gross profit$17,000 Operating expenses:Selling expenses$8,800 Administrative expenses4,210 Total operating expenses (13,010)Pretax operating income$3,990 Other items:Interest revenue$40 Rent revenue300 Interest expense(330)10 Income before income taxes$4,000 Income tax expense(700)Net income$3,300 Earnings per share (8,000 shares)$0.41 Shown next is the Schultz Company trial balance as of June 30, 2010:DebitCreditCash$7,200 Accounts receivable (net)10,300 Note receivable (due 9/1/10) 4,000 Inventory24,400 Prepaid insurance960 Property and equipment80,000 Accumulated depreciation$20,000 Accounts payable8,000 Dividends payable 3,200 Unearned rent1,800 Bonds payable, 10% (due 1/1/2015)12,000 Discount on bonds payable 600 Common stock, $1 par8,000 Premium on common stock34,580 Retained earnings26,400 Sales (net) 90,000 Cost of goods sold 48,600 Selling expenses 19,750 Administrative expenses 8,170 $203,980 $203,980 Additional information:1. The company uses a perpetual inventory system.2. The company uses control accounts for selling and administrative expenses.3. The company journalizes and posts its adjusting entries to its accounts only at year-end.4. Uncollectible accounts average 0.5% of net sales.5. The $4,000 note receivable was received on March 1, 2010. The 6-month note carries an annual interest rate of 12%, theinterest to be collected at the maturity date.6. The balance in the Prepaid Insurance account represents payment made on January 1, 2010 for a one-year comprehensiveinsurance policy.7. The Property and Equipment account consists of land, $5,000; buildings, $55,000; and equipment, $20,000. The buildingsare being depreciated over a 25-year life; the equipment over an 8-year life. Straight-line depreciation is used; residualvalue is disregarded. No acquisitions have been made in 2010. The depreciation on the buildings is treated as anadministrative expense; depreciation on the equipment as a selling expense.8. On February 1, 2010, the company rented some floor space to another company, receiving one years rent of $1,800 inadvance.9. The bonds pay interest semiannually on January 1 and July 1. Straight-line amortization of the discount is recorded atthe end of each year.10. The company estimates that its pretax income for the second half of 2010 will total $11,550. All items in income are subjectto the same income tax rate schedule. The income tax rate schedule is 15% on the first $20,000 of taxable incomeand 30% on the excess. There is no difference between the companys pretax financial income and taxable income, andno tax credits are available. The company rounds its estimated effective income tax rate to the nearest tenth of a percent.no tax credits are available....
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