Presented below is information related to Vaughn Corp. for the year 2020. Net sales $1,404,000 Write-off of inventory due to obsolescence $86,400 Cost of goods sold 842,400 Depreciation expense omitted by accident in 2019 59,400 Selling expenses 70,200 Casualty loss 54,000 Administrative expenses 51,840 Cash dividends declared 48,600 Dividend revenue 21,600 Retained earnings at December 31, 2019 1,058,400 Interest revenue 7,560 Effective tax rate of 20% on all items (a) Prepare a multiple-step income statement for 2020. Assume that 65,664 shares of common stock are outstanding for the entire year. (Round earnings per share to 2 decimal places, e. g. 1.49.Prepare a separate retained earnings statement for 2020. ()

Answer and Explanation:

The Preparation of multiple-step income statement for 2020 is presented below:-

                                 Vaughn Corporation

                        Multiple Step Income statement

                For the Year Ended December 31, 2020

Sales Revenue

Net Sales                                                                     $1,404,000

Less: Cost of good sold                                              ($842,400)

Gross Profit                                                                   $561,600

Operating expenses:  

Selling expenses                            $70,200  

Administrative expenses               $51,840  

Total operating expenses                                            ($122,040)

Operating Income                                                          $439,560

Other revenue

Dividend Revenue                     $21,600  

Interest Revenue                       $7,560                        $29,160

Total                                                                                $468,720

Other Expense and losses

Write-off of inventory due to obsolescence              ($86,400)

Income before taxes and extraordinary item              $382,320

Less: income tax [382320 × 20%]                                 ($76,464)

Income before extraordinary item                                  $305,856

Extraordinary Item  

Casualty loss                                 $54,000  

Less: Applicable tax deduction ($10,800)                    $43,200

(54,000 × 20%)

Net Income                                                                    $262,656

Earnings Per Share of Common Stock

Income before extraordinary item                                $4.66

(305,856 ÷ 65,664]

Extraordinary item                                                        ($0.66)

[43,200 ÷ 65,664]

Net Income                                                                   $4.00

2. The preparation of retained earnings is shown below:-

                                 Vaughn Corporation

                                    Retained earnings

                For the Year Ended December 31, 2020

Beginning retained earnings                           $1,058,400

Less: Depreciation error ($59,400 × 80%      $57,520

Retained earnings as on Jan 1                         $1,000,880

Add: Net income                                                $262,656

Less: Dividend declared                                   $48,600

Retained earnings Dec 31                                $1,214,936

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