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The Huff Company presents the following partial list of account balances taken from its December 31, 2019 adjusted trial balance: Sales (net) $122,000 Operating expenses $25,700 Interest expense 4,900 Common stock, $5 par 5,500 Cost of goods sold 62,000 Retained earnings, 1/1/2019 42,200 The following information is also available for 2019 and is not reflected in the preceding accounts: 1. The common stock has been outstanding all year. A cash dividend of $1.18 per share was declared and paid. 2. Land was sold at a pretax gain of $7,100. 3. Division X (a major component of the company) was sold at a pretax gain of $4,600. It had incurred a $9,450 pretax operating loss during 2019. 4. A tornado, which is an unusual event in the area, caused a $5,390 pretax loss. 5. The income tax rate on all items of income is 30%. 6. The average shareholders' equity is $90,000. Required: . Prepare a 2019 multiple-step income statement for Huff. Round earrings per share computations to two decimal places. HUFF COMPANY Income Statement (Multi-Step) For Year Ended December 31, 2019 Sales (net) 122.000 Cost of goods sold 62.000 Gross profit 60.000 Operating expenses 25.700 Operating income 34.300 Other items Gain on sale of land 7.100 Cost of goods sold X 4.600 X Interest expense -4.900 6.800 X Loss from operations of discontinued division X (net of income tax credit) 9.450 X Income tax expense 11.970 X Income from continuing operations 27.930 X Results from discontinued operations Loss from operations of discontinued division X (net of income tax credit) Prepare a 2019 multiple-step income statement for Huff. Round earnings per share computations to two decimal places. HUFF COMPANY Income Statement (Multi-Step) For Year Ended December 31, 2019 Sales (net) 122,000 Cost of goods sold 62.000 Gross profit 60,000 Operating expenses 25,700 Operating income 34,300 7,100 4,600 x -4.900 6.800 x Other items Gain on sale of land Cost of goods sold x Interest expense Loss from operations of discontinued division X (net of income tax credit) x Income tax expense Income from continuing operations Results from discontinued operations Loss from operations of discontinued division X (net of income tax credit) 9,450 11.970 27.930 Loss caused by tornado Net loss Components of Income Earnings per Common Share Income from continuing operations X 25.39 X Net income 18.93 X HUFF COMPANY Statement of Retained Earnings For Year Ended December 31, 2019 Retained earnings, 1/1/2019 45,400 X Add: Net income for 2019 20,818 X 66,218 x Less: Cash dividends -1.628 Retained earnings, 12/31/2019 64.590 Feedback T Check My Work Although not a required financial statement, whenever a corporation issues an income statement and a balance sheet, it may include a schedule that financial statement, called the statement of retained earnings. More often, companies report this reconciliation within the statement of shareholders' Example of a reconciliation of retained earnings: Banner Corporation Reconciliation of Retained Earnings For the Year Ended December 31, 2019 $68,150 Retained earnings, January 1, 2019 Add: Prior period adjustment, correction of understatement of 2012 ending inventory (net of $1,500 income taxes) Adjusted retained earnings, January 1, 2019 Add: Net income Less: Cash dividends declared, $0.50 per share Retained earnings, December 31, 2019 3,500 $71,650 9,450 (2,500) $78,600 3. Compute the 2019 return on common equity. Round to one decimal place. 23.4 X
