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XYZ's beginning balance in retained earnings was $1,940,000. The beginning balance in plant, 1 property, and equipment (PP&E) was $14,500,000. The beginning balance in accumulated depreciation was $4,750,000. On January 1, 2018, XYZ announced it was discontinuing all operations east of the Mississippi River 2 The assets associated with the discontinued operations had a combined cost of $4,500,000 and associated accumulated depreciation of $2,250,000. 3 Before the discontinued assets were sold for $3,000,000 on July 1, XYZ lost $900,000 on operations east of the Mississippi. years. Revenue on continuing operations, west of the Mississippi, was $9,000,000 for 2018. Cost of goods 4 sold was $5,000,000. Operating expenses other than deprecation was $2,750,000. 0 Depreciation on the west of the Mississippi assets was calculated on an expected life of 16 years. As 5 of 1/1/2018, these assets were 4 years old on average. Unfortunately, the previous accountant forgot 1 to include $2,000,000 in expected salvage value for these calculations. 2 XYZ has also determined that the original expected salvage value is still reasonable, but that the total 6 expected life of the assets should have been 20 years, i.e., these assets are expected to last another 16 3 4 5 7 XYZ earned $360,000 in rental income and incurred $480,000 in interest expense for the year. 6 XYZ had 1,000,000 shares of common stock and 500,000 shares of preferred stock outstanding for 8 2018. XYX declared and paid dividends of $0.40 per share on the common stock and $0.60 per share 17 on the preferred stock 18 19 9 XYZ s tax rate was 30%. 20 10 Prepare XYZ's statement of retained earnings and multi-step income statement for 2018 in good 21 form a 4 XYZ 5 Statement of Retained Earnings 6 7 8 Beginning balance as reported 9 Correction of excess depreciation net of tax 10 Correct beginning balance 11 Plus net income 12 Less common dividends 13 Less preferred dividends 14 Ending balance 15 16 17 XYZ 18 Income Statement 19 20 21 Revenue from continuing operations 22 Cost of goods sold 23 Gross profit 24 Operating expenses other tan depreciation 25 Depreciation expense 26 Operating income from continuing operations 27 Plus rental revenue 28 Less interest expense 29 Taxable income from continuing operations 30 Income tax expense 31 Net income from continuing operations 32 Less loss on operating discontinue operations net of tax 33 Plus gain on sale of assets from discontinued operations net of tax 34 Net income 35 36 Earning per share from continued operations 37 Loss per share on discontinued operations 38 Gain per share on sale of discontinued operations 39 Net earnings per share 40