Question

The financial records of Wildhorse Inc. were destroyed by fire at the end of 2020. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $82,800 and decreased 20% during the current year. 2. Sales discounts amount to $16,320. 3. 27,288 shares of common stock were outstanding for the entire year. 4. Interest expense was $20,800. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $620,000. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities. From the foregoing information prepare an income statement for the year 2020 in single-step form. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Answer 1

WILDHORSE INC.
INCOME STATEMENT
For the year ended December 31,2020.
Revenues :
Net sales		$1533680
(-) Expenses :
Selling expenses	$496000
Cost of goods sold	$620000
Interest expense	$20800
Administrative expenses	$124000
Total expenses		($1260800)
Income before tax		$272880
(-) income tax		($81864)
Net income		$191016
Earnings per share		$7

Calculations :

Net sales = gross sales - sales discounts.

Gross sales = administrative expenses / 8%

Administrative expenses = cost of goods sold ×20%

= $620,000×20%

= $124000

Gross sales = $124000 /8%

= $,1550,000

Net sales = $1,550,000 - $16320 = $1,533,680.

Selling expenses = ($620000 × 4)/5

= $496000

Total expenses = cost of goods sold + interest expense + selling expenses +administrative expenses.

= $620000+$20800+$$496000+$124000

= $1260800

Income before tax = net sales - total expenses.

= $1533680 - $ $1260800

= $272880

Income tax expense = $272880×30% = $81864

Net income = $272880 - $81864 = $191016

Earnings per share = $191016/27288 = $7 per share.