Extraordinary item/ Unusual or Infrequent Item

Presented below is information related to Brokaw Corp. for the year 2010.
Net sales $1,200,000 Write-off of inventory due to obsolescence $ 80,000
Cost of goods sold 780,000 Depreciation Exp omitted by accident in 2009 40,000
Selling expenses 65,000 Casualty loss (extraordinary item) before taxes 50,000
Admin expenses 48,000 Cash dividends declared & paid $45,000
Dividend revenue 20,000 Retained earnings at December 31, 2009 $980,000
Interest revenue 7,000 Effective tax rate of 34% on all items
Instructions
(a) Prepare a multiple-step income statement for 2010. Assume that 60,000 shares of
common stock are outstanding.
(b) Prepare a retained earnings statement for 2010

ANSWER:

Brokaw Corp.
Statement of Retained Earning
For Year Ended Dec 31, 2010
Retained earnings, Jan. 1 as reported.............................. $980,000
Correction for overstatement of income in prior year
Depreciation Error ……………….……….. 40,000
Applicable Tax Reduction……………... (13,600) (26,400)
Retained earnings, Jan. 1, as adjusted............................... 953,600
Add: Net Income....................................................... 134,640
1,088,240
Less: Dividend declared ……………………………. (45,000)
Retained Earnings, Dec 31 ……………………………… 1,043,240