Problem:
The trial balance of Terry Manning Fashion Center contained the following accounts at December 31, the end of the company’s fiscal year.
TERRY MANNING FASHION CENTER Trial Balance
December 31, 2010
Adjustment date:
1. Store supplies on hand totaled Tk 4,000
2. Annual depreciation is Tk 10,000 on the store equipment.
3. Interest of Tk 5,000 is accrued on notes payable at December 31, 2010.
4. Merchandise inventory on December 31, 2010 is Tk 440,000.
Other Data:
a) Salaries expense is 60% administrative and 40% selling category.
b) Rent expense and Utilities expense are 50% administrative and 50% selling category.
c) The company suffered an unusual and infrequent pretax loss of Tk 50,000 from a volcano eruption.
d) The company purchased office equipment for distributing its finished goods on January 2, 2008. Its cost was Tk. 400,000 with an estimated service life of 5 years. Salvage value was estimated to be Tk 100,000. During 2010 the company’s management decided to change to the straight –line method of depreciation.
Account Titles Debit Credit
Cash Tk 5,30,000 Trade Accounts Receivable 8,20,000 Merchandise Inventory 3,40,000 Store supplies 10,000 Store Equipment 3,00,000
Accumulated Depreciation- Store Equipment Tk 1,00,000 Delivery Equipment 4,00,000
Accumulated Depreciation- Delivery Equipment 1,44,000
Notes Payable 61,000
Trade Accounts payable 3,00,000
Terry Manning, Capital 10,00,000
Terry Manning, Drawing 2,00,000
Sales 32,71,000
Sales Return and Allowances 1,45,000 Purchase 16,00,000 Freight in 10,000 Salaries Expense 2,40,000 Advertising Expense 40,000 Utilities Expense 46,000 Delivery Expense 45,000 Rent Expense 1,50,000
Total Tk.48,76,000 Tk 48,76,000
e) It disposed of its restaurant division at a pre tax gain of Tk 60,000. Prior to disposal, the division operated at after tax loss of Tk50,000
f) The company recorded bad debt expense in the past at a rate of 2% of net sales. In 2010, it has decided to increase its estimate to 4% of net sales. If the new rate had been used in prior years, cumulative bad debt expense would have been Tk 100,000 instead of Tk 50,000. Bad debt expense is not recorded in 2010.
g) Company declared preferred dividend of Tk 20,000 for 2010.
Consider effective tax rate of 30% on all items.
Requirements:
(a) Prepare a multiple-step income statement for 2010.
(b) The corporation had 100,000 shares of common stock authorized and 80,000 shares issued and outstanding during 2010. Compute 2010 earnings per share.
