Selected pre-adjustment account balances and adjusting information of Sunset Cosmetics Inc. for the year ended December 31, 2011, are as follows:
Retained Earnings, January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440,670
Sales Salaries and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,090
Legal Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,225
Insurance and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,500
Travel Expense—Sales Representatives . . . . . . . . . . . . . . . . . . . . . . . . . 4,560
Depreciation Expense—Sales/Delivery Equipment . . . . . . . . . . . . . . . . 6,100
Depreciation Expense—Office Equipment . . . . . . . . . . . . . . . . . . . . . . . 4,800
Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400
Telephone and Postage Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,475
Supplies Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180
Miscellaneous Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000
Dividend Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,150
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,520
Allowance for Bad Debts (Cr. balance) . . . . . . . . . . . . . . . . . . . . . . . . . . 370
Officers’ Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,600
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,200
Sales Returns and Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,200
Sales Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880
Gain on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,500
Inventory, January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,700
Inventory, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,550
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,000
Freight-In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525
Accounts Receivable, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . 261,000
Gain from Discontinued Operations (before income taxes) . . . . . . . . . . . 40,000
Extraordinary Loss (before income taxes) . . . . . . . . . . . . . . . . . . . . . . . . 72,600
Shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000
Adjusting information:
(a) Cost of inventory in the possession of consignees as of December 31,
2011, was not included in the ending inventory balance. . . . . . . . . . . . . $33,600
(b) After preparing an analysis of aged accounts receivable, a decision
was made to increase the allowance for bad debts to a percentage
of the ending accounts receivable balance. . . . . . . . . . . . . . . . . . . . . . . . . . 3%
(c) Purchase returns and allowances were unrecorded. They are
computed as a percentage of purchases (not including freight-in). . . . . . . 6%
(d) Sales commissions for the last day of the year had not been accrued.
Total sales for the day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600
Average sales commissions as a percent of sales . . . . . . . . . . . . . . . . . . . . 3%
(e) No accrual had been made for a freight bill received on
January 3, 2012, for goods received on December 29, 2011. . . . . . . . . . . . $800
(f) An advertising campaign was initiated November 1, 2011.
This amount was recorded as prepaid advertising and should be
amortized over a 6-month period. No amortization was recorded. . . . . . . $1,818
(g) Freight charges paid on sold merchandise and not passed on to the
buyer were netted against sales. Freight charge on sales during 2011 . . . $4,200
(h) Interest earned but not accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $690
(i) Depreciation expense on a new forklift purchased March 1, 2011,
had not been recognized. (Assume that all equipment will have
no salvage value and the straight-line method is used. Depreciation
is calculated to the nearest month.)
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,800
Estimated life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(j) A “real” account is debited upon the receipt of supplies.
Supplies on hand at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,600
(k) Income tax rate (on all items) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35%

Instructions:
Prepare a corrected multiple-step income statement and a retained earnings statement for the year ended December 31, 2011. Assume all amounts are material.