4-37 Name: SOLUTION

Enter the appropriate amounts in the shaded cells in columns I, K and M.

Connell Company

Income Statement

For the Year Ended December 31, 2002

Revenue from sales:

Sales $ 8,125,000 ###

Less: Sales discounts $ 55,000 ###

Sales returns and allowances 95,000 150,000 $ 7,975,000

Cost of goods sold:

Inventory, January 1 $ 775,000 ###

Net purchases:

Purchases $ 4,633,200 ###

Less: Purchase discounts 47,700 4,585,500 ###

Freight-in 145,000 ###

Cost of goods available for sale $ 5,505,500 ###

Less: Inventory, December 31 (net of write-down) 750,000 4,755,500

Gross profit $ 3,219,500

Operating expenses:

Selling expenses:

Sales salaries $ 521,000 ###

Delivery expense 425,000 ###

Depreciation expense - delivery trucks 29,000 ###

Depreciation expense - store equipment 25,000 ###

Miscellaneous selling expenses 50,000 $ 1,050,000 ###

General and administrative expenses:

Officers' and office salaries $ 550,000 ###

Property tax expense 100,000 ###

Depreciation expense - office building 25,000 ###

Depreciation expense - office equipment 10,000 ###

Contribution to employee pension fund 190,000 ###

Doubtful accounts expense 32,000 ###

Miscellaneous general expenses 45,000 $ 952,000 2,002,000

Operating income $ 1,217,500

Other revenues and gains:

Dividend revenue 35,000 ###

Interest revenue 10,000 ###

Gain on sale of office equipment 8,000 53,000

Other expenses and losses

Loss on sale of investment securities (20,000)

Income from continuing operations before income taxes $ 1,250,500

Income taxes 427,425

Net Income $ 823,075

Earnings per share $ 13.72

Connell Company

Retained Earnings Statement

For the Year Ended December 31, 2002

Retained earnings, January 1, 2002 $ 550,000

Add: Net income from income statement 823,075

$ 1,373,075

Deduct: Dividends 150,000

Retained earnings, December 31, 2002 $ 1,223,075