Just after preparing the adjusting entries for the year, thelong-time controller at Parrot Company took a leave of absence. Herinexperienced assistant did his best to prepare financialstatements from the information the controller had left behind. Hehad particular difficulty with the income statement.
The item labeled sales expense is thesum of the amounts charged customers during the year for goods andservices provided.
Income Statement
December 31, 2007
Salesexpense $260,722
Cost of goodssold 102,690
Netprofit 158,032
Operating expenses:
Wages $59,780
Utilities 9,002
Interest 14,420
Depreciation 13,510
Total operatingexpense 97,712
Operatingincome $60,320
Advertisingexpense 9,968
Pretaxincome $50,352
Income taxexpense 13,150
Netincome $63,502
Earnings per share common stock
($64,502 ÷ 15,000shares) $4.30
Required:
- Identify and list the errors in the income statement.
- Prepare a corrected income statement.