Hanna Company has the following ledger accounts and adjusted balances as of December 31, 2022. All accounts have normal balances. Hanna’s income tax rate is 20%. Hanna has 500,000 shares of Common Stock authorized, 200,000 shares of Common Stock issued, and 190,000 shares of Common Stock outstanding.
Accounts Payable……………………………. 70,200 BS
Accounts Receivable………………………… 486,000
Accumulated Depreciation-Building………… 135,000
Accumulated Depreciation-Equipment………. 108,000
Administrative Expenses……………………. 108,000
Allowance for Doubtful Accounts…………… 54,000
Bonds Payable……………………………….. 480,000
Building……………………………………..1,350,000
Cash…………………………………………. 70,200 BS
Common Stock……………………………… 720,000
Cost of Goods Sold………………………….1,026,000
Discount on Bonds Payable………………… 12,000
Dividends…………………………………… 36,000
Equipment…………………………………… 522,000
Income from Operations of Division Y…….. 108,000
(Division Y is a component of Hanna Company)
Interest Revenue…………………………….. 72,000
Inventory………………………………………756,000
Land (held for future use)……………………. 540,000
Land (used for building)…………………….. 297,000
Loss from Sale of Division Y………………………216,000
(Division Y is a component of Hanna Company)
Loss on Sale of Investments………………… .. 27,000
Mortgage Payable …………………………… 675,000*
Paid-In Capital in Excess of Par………………475,200
Prepaid Rent…………………………………. 27,000**
Retained Earnings, January 1, 2022………… 675,000 BS
Sales Discounts………………………………. 54,000
Sales Returns and Allowances……………….. 90,000
Sales Revenue………………………………2,763,000
Selling Expenses……………………………. 351,000
Trademark…………………………………… 81,000
Treasury Stock………………………………. 72,000
*$48,000 of the principal comes due in 2023.
**Three years rent on offsite document storage paid in advance.
Instructions:
Use this information for multiple-step income statement, a retained earnings statement, and a classified balance sheet.
Hanna Company, a prominent business entity, presents its financial position and performance through various financial statements. This essay delves into the creation of a multiple-step income statement, a retained earnings statement, and a classified balance sheet using the provided adjusted balances as of December 31, 2022. The company’s financial health is dissected to provide insights into its operations, profitability, and overall financial stability.
The multiple-step income statement is a crucial financial tool that breaks down a company’s revenues, expenses, and net income in a structured manner. Hanna Company’s income statement for the year ending December 31, 2022, can be prepared as follows:
Sales Revenue $2,763,000
Less: Sales Returns and Allowances ($90,000)
Less: Sales Discounts ($54,000)
Net Sales $2,619,000
Selling Expenses ($351,000)
Administrative Expenses ($108,000)
Total Operating Expenses ($459,000)
Interest Revenue $72,000
Loss on Sale of Investments ($27,000)
Loss from Sale of Division Y ($216,000)
Net Other Income and Expenses ($171,000)
The retained earnings statement demonstrates how the company’s net income is distributed between dividends and retained earnings. The retained earnings statement for Hanna Company is presented as follows:
Retained Earnings, January 1, 2022 $675,000
Add: Net Income $770,400
Subtotal $1,445,400
A classified balance sheet categorizes a company’s assets, liabilities, and equity into current and non-current sections, providing insights into its financial position. Hanna Company’s classified balance sheet as of December 31, 2022, is organized as follows:
Assets:
Current Assets:
Cash $70,200
Accounts Receivable $486,000
Inventory $756,000
Prepaid Rent $27,000
Total Current Assets $1,339,200
Land (held for future use) $540,000
Trademark $81,000
Total Long-Term Investments $621,000
Current Liabilities:
Accounts Payable $70,200
Mortgage Payable (due in 2023) $48,000
Bonds Payable $480,000
Total Current Liabilities $598,200
Mortgage Payable $675,000
Discount on Bonds Payable $12,000
Total Long-Term Liabilities $687,000
Common Stock $720,000
Paid-In Capital in Excess of Par $475,200
Retained Earnings (Dec. 31, 2022) $1,409,400
Treasury Stock ($72,000)
Total Equity $2,532,600
In conclusion, the creation of a multiple-step income statement, a retained earnings statement, and a classified balance sheet allows us to comprehend Hanna Company’s financial performance and position. The income statement outlines the company’s revenues, expenses, and net income, while the retained earnings statement tracks the distribution of profits. The classified balance sheet provides insights into the company’s assets, liabilities, and equity, indicating its overall financial health. These financial statements serve as crucial tools for investors, analysts, and stakeholders to assess Hanna Company’s financial stability and make informed decisions.
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