Expert Answers

P4-47) Selected account balances of Connell Company for 2013 along with additional information as of December 31 are as follows:

Bad Debt Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,000
Delivery Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425,000
Depreciation Expense—Delivery Trucks . . . . . . . . . . . . . . . . . . . . . . . . 29,000
Depreciation Expense—Office Building . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Depreciation Expense—Office Equipment . . . . . . . . . . . . . . . . . . . . . . 10,000
Depreciation Expense—Store Equipment . . . . . . . . . . . . . . . . . . . . . . . 25,000
Dividend Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Employee Pension Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Freight-In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000
Gain on Sale of Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Income Taxes, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,425
Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Inventory, January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775,000
Loss on Sale of Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Loss on Write-Down of Obsolete Inventory . . . . . . . . . . . . . . . . . . . . . 75,000
Miscellaneous General Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Miscellaneous Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Officers’ and Office Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000
Property Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,700
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,633,200
Retained Earnings, January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,125,000
Sales Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
Sales Returns and Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
Sales Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521,000
(a) Inventory was valued at year-end as follows:
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $825,000
Write-down of obsolete inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
$750,000
(b) Number of Connell shares of stock outstanding: 60,000

Instructions:
Prepare a multiple-step income statement and statement of retained earnings for the year ended December 31, 2013.

P4-48) A newly hired staff accountant prepared the pre-audit income statement of Jericho Recreation Incorporated for the year ending December 31, 2008.

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.