On the attached page prepare a well-formatted multi-section income statement for the Fiona Company for the fiscal year ending December 31, 2020 from the data below. Use the entire figures as shown on your income statement. Note: For items in section 2 (Other Items) and section 4 (Below-the-line Items) use brackets if an item will have a negative impact on earnings. In section 1 individual items are not generally shown in brackets except for calculated margins or totals if negative. Cost of Goods Sold amounted to $20,000. Sale of equipment that had a historical cost of $1,400 had accumulated depreciation of $910 and was sold for $890. The tax rate related to such a transaction is 25%. Non-taxable interest income on municipal bonds of $300 Sales revenue totaled $35,000. Interest expense totaled $500 for the period. Selling and Administrative Expenses amounted to $6,000 The company discontinued operations during the year that will result in total losses before taxes of $2,000. This loss is a taxable loss at normal rates and is a below-the-line item. The company declared and paid out dividends of $1,600. The corporate income tax rate applicable to the company amounts to 40% combined for both federal and state taxes.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
On the attached page prepare a well-formatted multi-section income statement for the Fiona Company for the fiscal year ending December 31, 2020 from the data below. Use the entire figures as shown on your income statement.
Note: For items in section 2 (Other Items) and section 4 (Below-the-line Items) use brackets if an item will have a negative impact on earnings. In section 1 individual items are not generally shown in brackets except for calculated margins or totals if negative.
- Cost of Goods Sold amounted to $20,000.
- Sale of equipment that had a historical cost of $1,400 had
accumulated depreciation of $910 and was sold for $890. The tax rate related to such a transaction is 25%. - Non-taxable interest income on municipal bonds of $300
- Sales revenue totaled $35,000.
- Interest expense totaled $500 for the period.
- Selling and Administrative Expenses amounted to $6,000
- The company discontinued operations during the year that will result in total losses before taxes of $2,000. This loss is a taxable loss at normal rates and is a below-the-line item.
- The company declared and paid out dividends of $1,600.
- The corporate income tax rate applicable to the company amounts to 40% combined
for both federal and state taxes.
Introduction
Multi section income statement:
Multi section income statement is the income statement which classifies the data into 2 sub categories called operating and non-operating. Expenses and revenues are categorized into operating and non-operating income and expenses.
Operating section provides information about revenues and expense from main business activities. It is divided into 2 parts. 1st part is calculation of gross profit and 2nd part is calculation of operating income.
Gross profit = sales/service revenue – cost of goods sold
Operating income = gross profit – selling expenses – administrative expenses
Non-operating section is also called as “other incomes & expenses” and it contains revenues and expenses which are not earned directly through main business activities.
Net income = operating income after considering other items
Below the line item has no way effect net income. It is shown below net income. Loss from discontinued operations is a below the line item.
non taxable interest income is not taxed.
Sand it is taxable losses, so it is deducted to calculate net income.
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