An income statement for Lemon Corporation, a retailer, is provided below:
|Cost of goods sold||1,010,000||980,000||860,000|
|Income Before Taxes||790,000||550,000||490,000|
|Income Tax Expense||237,000||165,000||147,000|
Additional events and transactions that were not considered in preparing above are as follows:
1. The corporation experienced an uninsured flood loss during 2015 in the amount of $90,000.
2. At the beginning of 2013, the corporation purchased office equipment for $540,000 (salvage value of $90,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2013, 2014, and 2015 but failed to deduct the salvage value in computing the depreciation base for all three years.
3. Sale of securities held as part of its portfolio resulted in a loss of $57,000 (pre-tax) in 2015.
4. When its president died in 2015, the corporation realized $150,000 in cash from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000.
5. In 2015, the corporation disposed of one of its divisions at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.
6. During 2015, the corporation changed its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to decrease 2014 pretax income by $20,000 and increase 2013 pretax income by $60,000. The FIFO method has been used for 2015.
Prepare a typed, corrected comparative income statement for Lemon Corporation (i.e., be sure to include separate columns for each of the 3 years). Finally, assume a tax rate of 30% on all items.
Comparative Income Statement:
It is the statement that helps in comparing the performance of the company with last year's performance. It helps in preparing the plan and policies for the management.
Answer and Explanation:
Comparative Income Statement for Lemon Corporation
|Cost of goods sold||10,10,000||9,80,000||8,60,000|
|Income Before Taxes||7,90,000||5,50,000||4,90,000|
|less: Loss on sale of securities||-57,000|
|Add: Incorrect depreciation (540,000 / 6)||90,000||90,000||90,000|
|Less: Adjusted depreciation (540,000 - 90,000) / 6||-75,000||-75,000||-75,000|
|less: Loss due to flood||-90,000||0||0|
|Less: Loss on department||-1,15,000||0||0|
|Effect of change in inventory valuation method (60,000 - 20,000)||40,000|
|Income Before Taxes after adjustment||6,87,000||5,65,000||5,05,000|
|Income Tax Expense @30%||2,06,100||1,69,500||1,51,500|
Learn more about this topic:
from Accounting 101: Financial AccountingChapter 2 / Lesson 2