Zzz Company Sells Beds And Linens, There Are 10,000 Shares

1zzz Company Sells Beds And Linens There Are 10000 Shares Of Capi

ZZZ Company sells beds and linens. There are 10,000 shares of capital stock outstanding. The annual fiscal period ends on December 31. The following condensed trial balance was taken from the general ledger on December 31, 2010: Debit Credit Cash $42,000 Accounts receivable $18,000 Inventory $65,000 Operational assets $50,000 Accumulated depreciation $21,000 Liabilities $30,000 Common stock $90,000 Retained earnings, January 1, $16,600 Sales revenue $182,000 Sales returns and allowances $7,000 Cost of goods sold $98,000 Selling expense $17,000 Administrative expense $18,000 Interest expense $2,000 Extraordinary loss $8,000 Income tax expense (30% tax rate) $9,600 Totals $334,600 $334,600

Requirement: Prepare a multiple-step income statement using the provided trial balance data. The extraordinary loss should be shown below income from operations and net of taxes, requiring calculation of the tax impact of the extraordinary loss. Use outside resources as needed for proper formatting and presentation of the income statement.

Paper For Above instruction

The purpose of this paper is to prepare a detailed multiple-step income statement for ZZZ Company based on the trial balance data provided for the fiscal year ending December 31, 2010. The process involves identifying key financial components such as gross profit, operating income, income before taxes, and net income, incorporating the treatment of extraordinary items, and calculating the necessary income tax impact.

To begin, the income statement follows the conventional format that first pulls sales figures and deducts returns, followed by the cost of goods sold to arrive at gross profit. Operating expenses, specifically selling and administrative expenses, are then deducted to determine operating income. Additional income or expenses, such as interest expense, are then incorporated to calculate income before taxes. The extraordinary loss is then deducted below the income before taxes, net of tax implications, to arrive at net income.

Starting with sales revenue: $182,000. The sales returns and allowances amount to $7,000, reducing gross sales to net sales of $175,000. The cost of goods sold is $98,000, which, when deducted from net sales, yields a gross profit of $77,000.

Operating expenses comprise selling expenses of $17,000 and administrative expenses of $18,000, totaling $35,000. Deducting these from gross profit results in operating income of $42,000 ($77,000 - $35,000).

Next, we consider other income and expenses. Interest expense of $2,000 reduces operating income, leading to income before extraordinary items of $40,000 ($42,000 - $2,000). The extraordinary loss of $8,000 impacts income after taxes; therefore, this must be adjusted for taxes at a rate of 30%, resulting in a tax saving of $2,400 ($8,000 x 30%) and an after-tax extraordinary loss of $5,600 ($8,000 - $2,400).

Thus, to determine net income, we deduct the after-tax extraordinary loss from income before taxes: $40,000 - $5,600 gives the net income of $34,400.

Calculating taxes on income before income tax expense and extraordinary loss involves detailed steps. The income tax expense provided ($9,600) is based on the entire income statement's taxable income. With this, we can verify that total income tax aligns correctly, considering the taxes on regular operations and extraordinary items separately.

In conclusion, the multiple-step income statement displays the company's profitability, separates operational performance from exceptional items, and accurately reflects financial health for stakeholders and investors. Proper formatting following accounting standards ensures clarity and compliance with financial reporting requirements.

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