After all of the transactions for the year ended December 31, 2018 had been posted including the transactions recorded in part (1) and all adjusting entries, the data that follow were taken from the records of Equinox Products Inc. a. Prepare a multiple-step income statement for the year ended December 31, 2018. Enter all amounts as positive numbers EXCEPT in the Other revenue and expense section. In that section only, enter amounts that represent other expenses as negative numbers using a minus sign.

b. Prepare a retained earnings statement for the year ended December 31, 2018.

c. Prepare a balance sheet in the report form as of December 31, 2018.

Question Completion:

Income Statement data:

Advertising expense   $ 150,000

Cost of goods sold   3,700,000

Delivery expense   30,000

Depreciation expense-office buildings and equipment   30,000

Depreciation expense-store buildings and equipment   100,000

Income tax expense   140,500

Interest expense   21,000

Interest revenue   30,000

Miscellaneous administrative expense   7,500

Miscellaneous selling expense   14,000

Office rent expense   50,000

Office salaries expense   170,000

Office supplies expense   10,000

Sales   5,313,000

Sales commissions   185,000

Sales salaries expense   385,000

Store supplies expense   21,000

Retained earnings and balance sheet data:

Accounts payable   $ 194,300

Accounts receivable   545,000

Accumulated depreciation—office buildings and equipment   1,580,000

Accumulated depreciation—store buildings and equipment   4,126,000

Allowance for doubtful accounts   8,450

Bonds payable, 5%, due in 10 years   500,000

Cash   282,850

Common stock, $20 par  

(400,000 shares authorized; 100,000 shares issued, 94,600 outstanding)   2,000,000

Dividends:  

Cash dividends for common stock   155,120

Cash dividends for preferred stock   100,000

Goodwill   700,000

Income tax payable   44,000

Interest receivable   1,200

Inventory (December 31, 20Y8),  

at lower of cost (FIFO) or market   778,000

Office buildings and equipment   4,320,000

Paid-in capital from sale of treasury stock   13,000

Excess of issue price over par:  

-Common   886,800

-Preferred   150,000

Preferred 5% stock, $80 par  

(30,000 shares authorized; 20,000 shares issued)   1,600,000

Premium on bonds payable   19,000

Prepaid expenses   27,400

Retained earnings, January 1, 20Y8   8,197,220

Store buildings and equipment   12,560,000

Treasury stock  

(5,400 shares of common stock at cost of $33 per share)   178,200

Income Statement for the year ended December 31, 2018:

Sales Revenue                                     $5,313,000

Cost of goods sold                                3,700,000

Gross profit                                           $1,613,000

Other Expenses:

Advertising expense              $ 150,000

Sales commissions                    185,000

Sales salaries expense            385,000

Delivery expense                       30,000

Miscellaneous selling expense  14,000

Store supplies expense             21,000

Depreciation expense-

Store buildings & equipment 100,000

Depreciation expense-

Office buildings & equipment  30,000

Misc. administrative expense    7,500

Office rent expense                50,000

Office salaries expense         170,000

Office supplies expense         10,000     1,152,500

Operating Income                                  $460,500

Other Revenue and Expense:

Interest revenue                                         30,000

Interest expense                                        -21,000

Pretax Income                                        $469,500

Income tax expense                                 140,500

Net Income                                            $329,000

b. Equinox Products Inc.

Statement of Retained EArnings for the year ended December 31, 2018:

Retained earnings, January 1, 2018  $8,197,220

Net Income for the year                        329,000

Cash Dividends: Common Stock          -155,120

Cash Dividends: Preferred Stock         -100,000

Retained Earnings, Dec. 31, 2018      $8,271,100

c. Equinox Products Inc.

Balance Sheet as of December 31, 2018:

Cash                                                                      282,850

Accounts receivable                   545,000

Allowance for doubtful accounts   8,450           536,550  

Interest receivable                                                   1,200

Inventory (December 31, 20Y8),   at lower of

 cost (FIFO) or market                                       778,000

Prepaid expenses                                                27,400

Total Current Assets                                    $1,626,000       $1,626,000

Office buildings and equipment     4,320,000

less accumulated depreciation      1,580,000   2,740,000

Store buildings and equipment    12,560,000

less accumulated depreciation      4,126,000   8,434,000

Goodwill                                                                700,000

Total non-current assets                                $11,874,000    11,874,000

Total Assets                                                                        $13,500,000

Liabilities + Equity:

Current Liabilities:

Accounts payable                                $ 194,300

Income tax payable                                 44,000

Premium on bonds payable                    19,000

Total Current Liabilities                                                           $257,300

Non-current Liabilities:

Bonds payable, 5%, due in 10 years                                        500,000  

Shareholders' Equity:

Common stock, $20 par (400,000 shares authorized;

 100,000 shares issued, 94,600 outstanding) 2,000,000

Preferred 5% stock, $80 par (30,000 shares

authorized; 20,000 shares issued)                    1,600,000

Paid-in In Excess of par: Common                        886,800

Paid-in In Excess of par: Preferred                        150,000

Retained earnings, December 31, 2018              8,271,100

Treasury stock   (5,400 shares of common

 stock at cost of $33 per share)    178,200

Paid-in capital from sale of

  treasury stock                                13,000         (165,200) 12,742,700

Total Liabilities and Equity                                                $13,500,000

Explanation:

The Income Statement shows the financial performance of Equinox Products Inc. for the year ended December 31, 2018.  Therein, the gross profit is stated as the excess of sales revenue over cost of goods sold.  The operating income represents the income from the normal business of the company.  Other revenue and expense, like interest are added to get the pretax income.  After income tax expense is deducted, we arrive at the net income.

The statement of the Retained Earnings shows the movement that has occurred in the retained earnings during the period with net income added and dividends subtracted.

The balance sheet of Equinox Products Inc. shows the financial position with assets in their classes and the liabilities and equity sections which ensure that the accounting equation is achieved at the end of the period.

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