Chapter 4, Problem 4.3E

1.

To determine

Income Statement

The financial statement which reports revenues and expenses from business operations and the result of those operations is reported as net income or net loss for a particular time period is referred to as income statement

Multi step income statement

A multiple step income statement refers to the income statement that shows the operating, and non-operating activities of the business, under separate head.

Single-step income statement

Format in which a single subtotal of all revenue items are listed in one column and a single subtotal of all expense items including cost of goods sold are listed in another column. Thus, the subtotal of all expense items is deducted from the subtotal of all revenue items to arrive at the net income at the bottom of the statement.

EPS (Earnings Per Share)

The share or portion of profit earned by each share is called as earnings per share.

$\text{Earnings per share = }\frac{\text{Net}\text{income}}{\text{Number of common shares outstanding}}$

To Prepare: A single-step income statement for 2016, including EPS.

Explanation of Solution

Prepare a single-step income statement for 2018 for Corporation G.

Corporation G
Single- Step Income Statement
For the Year Ended December 31, 2018
Particulars	Amount  ($)	Amount ($)
Revenues and gains:
Sales		2,350,000
Interest		80,000
Total revenues and gains		2,430,000
Less: Expenses and losses:
Cost of goods sold	1,200,300
Selling	300,000
General and administrative	150,000
Interest	90,000
Loss on sale of investments	22,500
Loss from inventory write-down	200,000
Total expenses and losses		(1,962,800)
Income before income taxes		467,200
Less: Income tax expense (a)		(186,880)
Net income		280,320
Earnings per share (b)		$0.93

                                               Table (1)

Working Notes:

Calculate the income tax expenses

$\begin{array}{c}\text{Income from tax expenses = Income before income taxes}\times \text{Tax}\text{rate}\\ \text{= \$467,200 }\times \text{ 40\%}\\ \text{= \$186,880}\end{array}$                    (a)

Calculate the EPS

$\begin{array}{c}\text{Earnings}\text{per}\text{share = }\frac{\text{Net income }}{\text{Number of common shares outstanding}}\\ =\frac{\$280,320}{\$300,000}\\ =\$0.93\end{array}$ (b)

Conclusion

Hence, the net income of the Corporation G under Single–step income statement is $280,320 with the EPS value of $0.93.

2.

To determine

To Prepare:  Multiple-step income statement for 2016, including EPS.

Explanation of Solution

Prepare the multi-step income statement for 2016, Corporation G.

Corporation G
Multi- Step Income Statement
For the Year Ended December 31, 2016
Particulars	Amount ($)	Amount ($)
Sales revenue	2,350,000
Cost of goods sold	1,200,300
Gross profit		1,149,700
Operating expenses:
Selling	300,000
General and administrative	150,000
Loss from inventory write-down	200,000
Total operating expenses		650,000
Operating income		499,700
Other income (expense):
Interest revenue	80,000
Loss on sale of investments	(22,500)
Interest expense	(90,000)
Total other income (expense), net		(32,500)
Income before income taxes		467,200
Income tax expense (a)		186,880
Net income		280,320
Earnings per share (b)		0.93

                                            

Table (2)

Conclusion

Hence, the net income of the Corporation G under Multi–step income statement is $280,320 with the EPS value of $0.93.