Selected data for Brinks Company for 1998 are given below:

Assume the applicable federal income tax rate is \(40 \%\). All of the items of expense, revenue, and loss are included in the computation of taxable income. The earthquake loss resulted from the first earthquake experienced at the company's location. In addition, the company discovered that in 1997 it had erroneously charged to expense the \(\$ 160,000\) cost of a tract of land purchased that year and had made the same error on its tax return for 1997.
Required

a. Prepare an income statement for the year ended December 31, 1998.

b. Prepare a statement of retained earnings for the year ended December 31, 1998.

Transcribed Image Text:

Common stock--$20 par value Sales, net Selling and administrative expenses Cash dividends declared and paid. Cost of goods sold Depreciation expense Interest revenue $2,000,000 1,740.000 320,000 120,000 800.000 120,000 20,000 Loss on write-down of obsolete inventory 40,000 Retained earnings (as of 12/31/97) 2,000,000 Operating loss on Candy Division up to point of sale in 1998 40.000 Loss on disposal of Candy Division 200,000 Earthquake loss 96.000 Cumulative negative effect on prior years' income of changing from straight-line to an accelerated method of computing depreciation 64,000