Question

At the beginning of 2016, Zipper Company had the shareholders’ equity as shown below:

Common stock $5 par             $35,000

Additional Paid in Capital      $49,000

Retained Earnings                   $63,000

During 2018, the following events and transactions occurred.

1. Zipper had sales revenue of $108,000. It incurred Cost of Goods Sold of $62,000 and Operating Expenses of $12,000.
2. Zipper issued 1,000 shares of its $5 par common stock for $14 per share at the beginning of the year and the same number of shares were outstanding all year.
3. Zipper had an effective cash flow hedge that increased in value (unrealized gain/loss) by $10,000 in the current year.
4. Zipper paid dividends of $6,000.
5. The company’s tax rate was 21%.

Required: a) Prepare an income statement which includes net income and comprehensive income (in other words, the comprehensive income statement), but you can ignore earnings per share. b) Describe the alternative formats you could have used for this statement.

Answer 1

Zipper Company
Statement of Comprehensive Income
For the year ending 2018
Particular	$	Amount($)
Sales		108,000
Cost of goods sold		62,000
Gross profit		46,000
Operating expenses		12,000
Income from continuing operations before income taxes		34,000
Income taxes(34,000 X 21%)		7,140
Income from continuing operations/ Net income		26,860
Other Comprehensive income adjustments from certain investments		10,000
Comprehensive income		36,860

Alternative formats that could be used for this statement are:

1. Classified Income statement: This format of income statement shows the aggregate value of all the revenues and expenses and gives the net profit. This format does not represent the data under each head.
2. Contribution margin income statement: This format of income statement represents the revenues and expenses in the form of Sales, Variable cost and fixed cost. Contribution margin is calculated here instead of gross profit. and deducting fixed cost from contribution margin will give net profit.