Corrected Income and Retained Earnings Statements:

Selected pre-adjustment account balances and adjusting information of Sunset Cosmetics Inc. for the year

ended December 31, 2015, are as follows:

Retained Earnings, January 1, 2015 $440,670

Sales Salaries and Commissions 35,000

Advertising Expense 16,090

Legal Services 2,225

Insurance and Licenses 8,500

Travel ExpenseSales Representatives 4,560

Depreciation ExpenseSales/Delivery

Equipment 6,100

Depreciation ExpenseOffice 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, 2015 89,700

Inventory, December 31, 2015 20,550

Purchases 173,000

Freight-In 5,525

Accounts Receivable, December 31, 2015 261,000

Gain from Discontinued Operations

(before income taxes) 40,000

Extraordinary Loss (before income taxes) 72,600

Adjusting information: (a) Cost of inventory in the possession of consignees as of December 31, 2015, 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, 2016, for goods received on December 29, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800 (f ) An advertising campaign was initiated November 1, 2015. 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 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,200 (h) Interest earned but not accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $690 (i) Depreciation expense on a new forklift purchased March 1, 2015, 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% (l) Shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000

Instructions: Prepare a corrected multiple-step income statement and a retained earnings statement for the year ended December 31, 2015. Assume all amounts are material.

Actually I have almost done but I have a small question about what sales balance is ? The answer is 495,200+4,200=$499,400, but I am so confused thatwhy 4,200 need to beadded to sales balance?