(Multi-step Income & Retained Earnings) Presented below is information related to American Horse Company for 2004

Retained earnings balance, January 1, 2004 $ 850,000

Sales for the year 35,000,000

Cost of goods sold 17,000,000

Depreciation Expense mistakenly not reported,2002 32,000

Telephone - Sales 17,000

Advances from customers 117,000

Interest revenue 70,000

Rental revenue 50,000

Write-off of inventory due to obsolescence 80,000

Accumulated depreciation Equipment 40,000

Accumulated depreciation Building 28,000

Write-off of goodwill (Infrequent or Unusual Item) 820,000

Sales Discount 15,000

Sales Return 25,000

Overstatement of income due change in inventory costing method 88,000

Prepaid insurance 20,000

Income taxes for 2004 905,000

Travel and entertainment 69,000

Advertising 54,000

Transportation-out 93,000

Sales commissions 83,000

Gain on the sale of investments (normal recurring) 110,000

Loss due to flood damageextraordinary item 390,000

Loss on the disposition of the wholesale division 440,000

Loss on operations of the wholesale division 90,000

Dividends declared on common stock 250,000

Dividends declared on preferred stock 70,000

Requirement

a.Make a multi-step income statement and a retained earnings statement. American Horse Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, American Horse sold the wholesale operations to Rogers Company. During 2004, there were 300,000 shares of common stock outstanding all year.

b.how the extraordinary gain and losses are treated differently in the income statement as compare to unusual or infrequent