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Corrected Income Statement A newly hired staff accountant

Question # 00269354
Subject: Business
Topic: General Business
Due on: 06/02/2016
Posted On: 05/03/2016 11:59 AM

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Corrected Income Statement

A newly hired staff accountant prepared the pre-audit income statement of Jericho Recreation Incorporated for the year ending December 31, 2008.

Net revenues

$797,000

Cost of goods sold

300,800

Gross profit

$496,200

Expenses:

Sales salaries and commissions

$160,000

Officers’ and office salaries

210,000

Depreciation

56,000

Advertising expense

13,400

Other general and administrative expenses

38,80

478,200

Income from continuing operations

$18,000

Discontinued operations:

Gain on disposal of business segment

40,000

Income before income taxes

$58,000

Income taxes (30%)

17,400

Net income

$40,600

Earnings per common share (10,000 shares outstanding)

$406.00

The following information was obtained by Jericho’s independent auditor.

(a) Net revenues in the income statement included the following items.

Sales returns and allowances

$ 9,500

Interest revenue

6,600

Interest expense

10,600

Loss on sale of short-term investment

3,000

Extraordinary gain

16,000

(b) Of the total depreciation expense reported in the income statement, 60% relates to stores and store equipment, 40% to office building and equipment.

(c) At the beginning of 2008, management decided to close one of Jericho’s retail stores. Jericho is a large company and does not attempt to prepare complete financial reports for each individual store. The inventory and equipment were moved to another Jericho store, and the land and building were sold on July 1, 2008, at a pretax gain of $40,000.This amount has been reported under discontinued operations.

(d) The income tax rate is 30%.

Instructions:

Prepare a corrected multiple-step income statement for the year ended December 31, 2008.

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