Cost of goods sold 60570 Selling expenses 17150 Administrative expenses 8860

Cost of goods sold 60570 selling expenses 17150

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      Cost of goods sold ............................................................ 60,570       Selling expenses ................................................................ 17,150       Administrative expenses ................................................... 8,860       Interest expense .................................................................       1,860             Total expenses .............................................................     88,440 Income before income tax ....................................................... 25,290 Income tax ................................................................................       9,070       Net income ......................................................................... $  16,220 Earnings per share .................................................................. $.40 Note:  An alternative income statement format for the single-step form is to show income tax a part of expenses, and not as a separate item. (c) Single-step: 1. Simplicity and conciseness. 2. Probably better understood by users. 3. Emphasis on total costs and expenses and net income. 4. Does not imply priority of one revenue or expense over another. 3
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EXERCISE 4-5 (Continued) Multiple-step: 1. Provides more information through segregation of operating and  nonoperating items. 2. Expenses are matched with related revenue. Note to instructor:   Students’ answers will vary due to the nature of the question; i.e., it asks for an opinion. However, the discussion supporting the answer should include the previous points. EXERCISE 4-13  Net income:       Income from continuing operations            before income tax $23,650,000       Income tax (35% X $23,650,000)    8,277,500       Income from continuing operations 15,372,500       Discontinued operations             Loss before income tax $3,225,000             Less: Applicable income tax (35%)   1,128,750    (2,096,250)       Net income $13,276,250 Preferred dividends declared: $  1,075,000 Weighted average common shares outstanding 4,000,000 Earnings per share       Income from continuing operations $3.57*       Discontinued operations, net of tax    (.52 )**       Net income $3.05 ***    *($15,372,500 – $1,075,000)  ÷  4,000,000. (Rounded)   **$2,096,250  ÷  4,000,000. (Rounded) ***($13,276,250 – $1,075,000)  ÷  4,000,000.
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