The following data were taken from the records of Surf’s Up Corporation for the year ended July
31, 2006:
Retained earnings and balance sheet data:
Accounts payable ...........................$ 9,500
Accounts receivable .........................276,050
Accumulated depreciation ........................3,050,000
Accumulated other comprehensive income ..................15,000
Allowance for doubtful accounts .....................11,500
Cash ...............................115,500
Common stock, $10 par (500,000 shares authorized; 251,000 shares issued) ..2,510,000
Deferred income taxes payable (current portion, $4,700) ...........65,700
Dividends:
Cash dividends for common stock ......................80,000
Cash dividends for preferred stock ...................100,000
Stock dividends for common stock .....................40,000
Dividends payable ..........................25,000
Employee termination benefit obligation (current) ...............90,000
Equipment ............................11,819,050
Income tax payable ............................55,900
Interest receivable .............................2,500
Merchandise inventory (July 31, 2006), at lower of cost (FIFO) or market .....551,500
Paid-in capital from sale of Treasury stock .................$ 5,000
Paid-in capital in excess of par—common stock ..............996,300
Paid-in capital in excess of par—preferred stock ................240,000
Patents .................................85,000
Preferred 62–3% stock, $100 par (30,000 shares authorized; 15,000 shares issued).1,500,000
Prepaid expenses ...........................15,900
Retained earnings, August 1, 2005 .....................4,231,600
Temporary investments in marketable equity securities (at cost) ..........95,000
Treasury stock (1,000 shares of common stock at cost of $40 per share) .......40,000
Unrealized gain (net of tax) on marketable equity securities ...........15,000
Income statement data:
Administrative expenses ........................$ 140,000
Cost of merchandise sold .......................984,000
Gain on condemnation of land ......................30,000
Income tax:
Applicable to continuing operations .....................170,000
Applicable to loss from discontinued operations ................24,000
Applicable to gain on condemnation of land ................10,000
Interest expense .............................7,500
Interest revenue .............................1,500
Loss from disposal of discontinued operations ................104,000
Loss from fixed asset impairment .....................60,000
Restructuring charge .........................300,000
Sales . ..............................2,600,000
Selling expenses .............................540,000
Instructions
1. Prepare a multiple-step income statement for the year ended July 31, 2006, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 250,000 and preferred dividends were $100,000. Assume that the gain on the condemnation of land is an extraordinary item.
2. Prepare a retained earnings statement for the year ended July 31, 2006.
3. Prepare a balance sheet in report form as of July 31, 2006.