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.
Cost of goods sold
Sales salaries and commissions
Officers’ and office salaries
Other general and administrative expenses
Income from continuing operations
Gain on disposal of business segment
Income before income taxes
Income taxes (30%)
Earnings per common share (10,000 shares outstanding)
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
Loss on sale of short-term investment
(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%.
Prepare a corrected multiple-step income statement for the year ended December 31, 2008.