Question

What would be the muilti step income statement and retained earning statement?  

Paige Co. is a niche furniture manufacturer and retailer who operates mainly in the Carolinas. A partial trial balance showing Paige’s equity, revenue and expense balances as of its    year-end follows:

    Debits              Credits

Dividends                                                                     $   274,520

Retained earnings (1/1/19)                                                                     $   714,830

Unrealized holding gain – CKB bonds (1/1/19)                                              89,145

Interest revenue                                                                                         21,690

Sales revenue                                                                                        8,432,265

Bad debt expense                                                               104,710

Cost of goods sold                                                         5,258,345

Depreciation expense                                                         219,480

Insurance expense                                                                92,305

Interest expense                                                                 113,925

Salaries and wages expense                                           1,906,670

Utilities expense                                                                193,255

In addition, the following information is available for the company for 2019. Unless indicated otherwise, this information has not yet been reflected in the company’s accounts. All of the dollar amounts are stated on a before-tax basis.

1. Paige restructured its ongoing operations during 2019, resulting in restructuring charges of $32,925.
2. At year-end 2019, Paige is reviewing the percentage it uses to estimate bad debts. With economic conditions improving, the company determines that it must decrease the percentage it uses to estimate bad debts from 6.95% to 5.70%. The effect of this change on 2019 income is as follows:

Bad debt expense based on a 6.95% rate (old rate)                      $104,710

Bad debt expense based on a 5.70% rate (new rate)                       96,530

Note – The bad debt expense figure in the partial trial balance above reflects use of the old rate (6.95%) for 2019.

3. In July 2019, Paige extinguished 7% bonds payable having a book value of $532,590. Paige paid the investors $598,735 to retire these bonds.
4. In 2013, Paige purchased bonds issued by CKB Co., which it continues to hold as an available-for-sale investment. The fair value of Paige’s investment decreased in 2019, from $461,880 to $414,915.

Note – The $89,145 Unrealized holding gain – CKB bonds (1/1/19) in the partial trial balance above relates to this item and, of course, is stated net of income taxes.

5. In 2017, Paige purchased certain equipment and began using it. In the process of preparing the adjusting entries at year-end 2019, Paige discovered that it mistakenly double-counted the equipment’s estimated salvage value in the depreciation calculations for 2017 and 2018. The total amount of understatement of depreciation expense for these two years was $37,615.

Note – The discovery and correction of the 2017 and 2018 errors will not change the depreciation expense for 2019. The $219,480 figure in the partial trial balance above is correct.

Assume the above amounts are material. Also, assume the income tax rate applicable to all years and all income items is 25%. Finally, note that Paige uses the multiple-step format for the reporting of net income items and the one-income statement approach for the display of other comprehensive income items.

Answer 1