Comprehensive Problem

Mountain Sports, Inc., is a retailer that has engaged you to assist in the preparation of its financial statements at December 31, 2021. Following are the correct adjusted account balances, in alphabetical order, as of that date. Each balance is the normal balance for that account. (Hint: The normal balance is the same as the debit or credit side that increases the account.)

Accounts payable $12,750

Accounts receivable 2,600

Accumulated depreciation: office equipment 12,000

Additional paid-in capital (common stock) 13,000

Bonds payable (due December 31, 2024) 22,500

Cash 19,200

Common stock (1,800 shares, $10 par value) 18,000

Cost of goods sold 100,575

Deferred income taxes 5,750

Depreciation expense: office equipment 2,750

Dividends declared 5,000

Income tax expense 8,190

Insurance expense 900

Land 39,500

Merchandise inventory 17,500

Notes payable (due December 31, 2022) 2,500

Office equipment 41,000

Office supplies 900

Office supplies expense 520

Preferred stock (250 shares, $20 par value) 5,000

Premium on bonds payable 1,750

Prepaid rent 1,800

Rent expense 6,100

Retained earnings (January 2021) 21,050

Salaries expense 88,095

Sales 226,000

Sales returns and allowances 2,500

Sales taxes payable 3,200

Treasury stock (200 common shares at cost) 2,250

Utilities expense 4,120

Instructions

1. Prepare an income statement for the year ended December 31, 2021, which includes amounts for gross profit, income before income taxes, and net income. List expenses (other than cost of goods sold and income tax expense) in order, from the largest to the smallest dollar balance. You may ignore earnings per share.

2. Prepare a statement of retained earnings for the year ending December 31, 2021.

3. Prepare a statement of financial position (balance sheet) as of December 31, 2021, following these guidelines:

a. Include separate asset and liability categories for those items that are current.

b. Include and label amounts for total assets, total liabilities, total stockholders equity, and total liabilities and stockholders equity.

Present deferred income taxes as a noncurrent liability. To the extent information is available that should be disclosed, include the parenthetical disclosure of that information.