Problem:
Olson Corporation's capital structure consists of 40,000 shares of common stock. At December 31, 2004, an analysis of the accounts and discussions with company officials revealed the following information:
Sales $1,400,000
Purchase discounts 18,000
Purchases 820,000
Earthquake loss (net of tax) (extraordinary item) 42,000
Selling expenses 128,000
Cash 60,000
Accounts receivable 90,000
Common stock 200,000
Accumulated depreciation 180,000
Dividend revenue 8,000
Inventory, January 1, 2004 152,000
Inventory, December 31, 2004 125,000
Unearned service revenue 4,400
Accrued interest payable 1,000
Land 370,000
Patents 100,000
Retained earnings, January 1, 2004 270,000
Interest expense 17,000
Cumulative effect of change from straight-line to
accelerated depreciation (net of tax) 28,000
General and administrative expenses 210,000
Dividends declared 29,000
Allowance for doubtful accounts 5,000
Notes payable (maturity 7/1/07) 200,000
Machinery and equipment 450,000
Materials and supplies 40,000
Accounts payable 60,000
The amount of income taxes applicable to ordinary income was $67,200, excluding the tax effect of the earthquake loss which amounted to $18,000 and the tax effect of the change of accounting principle which was $12,000.
INSTRUCTIONS:
(a) Prepare a multiple-step income statement.
(b) Prepare a retained earnings statement.