4 Income Statement and Related Information EXERCISES 4
EXERCISES
E4-1 (L02) (Computation of Net Income) Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.
Instructions
Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.
E4-2 (L02,4) (Compute Income Measures) Presented below is information related to Viel Company at December 31, 2017, the end of its first year of operations.
Instructions
Compute the following: (a) income from operations, (b) net income, (c) comprehensive income, and (d) retained earnings balance at December 31, 2017. (Ignore income tax effects.)
E4-3 (L02,4) (Income Statement Items) Presented below are certain account balances of Paczki Products Co.
Instructions
From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.
E4-4 (L02,3) (Single-Step Income Statement) The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.
1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year.
2. Sales discounts amount to $17,000.
3. 20,000 shares of common stock were outstanding for the entire year.
4. Interest expense was $20,000.
5. The income tax rate is 30%.
6. Cost of goods sold amounts to $500,000.
7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.
8. Four-fifths of the operating expenses relate to sales activities.
Instructions
From the foregoing information prepare an income statement for the year 2017 in single-step form.
E4-5 (L02,3) EXCEL (Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company ($000 omitted).
Administrative expense
Officers’ salaries $ 4,900
Depreciation of office furniture and equipment 3,960
Cost of goods sold 60,570
Rent revenue 17,230
Selling expense
Delivery expense 2,690
Sales commissions 7,980
Depreciation of sales equipment 6,480
Sales revenue 96,500
Income tax 9,070
Interest expense 1,860
Instructions
(a) Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total
40,550 (000 omitted).
(b) Prepare an income statement for the year 2017 using the single-step form.
(c) Which one do you prefer? Discuss.
E4-6 (L02,3,4) (Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December
31, 2017.
Interest revenue $ 86,000 Accumulated depreciation—equipment $ 40,000
Cash 51,000 Accumulated depreciation—buildings 28,000
Sales revenue 1,380,000 Notes receivable 155,000
Accounts receivable 150,000 Selling expenses 194,000
Prepaid insurance 20,000 Accounts payable 170,000
Sales returns and allowances 150,000 Bonds payable 100,000
Allowance for doubtful accounts 7,000 Administrative and general expenses 97,000
Sales discounts 45,000 Accrued liabilities 32,000
Land 100,000 Interest expense 60,000
Equipment 200,000 Notes payable 100,000
Buildings 140,000 Loss from earthquake damage 150,000
Cost of goods sold 621,000 Common stock 500,000
Retained earnings 21,000
Assume the total effective tax rate on all items is 34%.
Instructions
Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.
E4-7 (L02,3,4) (Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2017.
Rent revenue $ 29,000
Interest expense 18,000
Market appreciation on land above cost 31,000
Salaries and wages expense (selling) 114,800
Supplies (selling) 17,600
Income tax 37,400
184 Chapter 4 Income Statement and Related Information
Salaries and wages expense (administrative) $135,900
Other administrative expenses 51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the year.
Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement.
(c) Which format do you prefer? Discuss.
E4-8 (L03,4) (Income Statement, EPS) Presented below are selected ledger accounts of Tucker Corporation as of December
31, 2017.
Cash $ 50,000
Administrative expenses 100,000
Selling expenses 80,000
Net sales 540,000
Cost of goods sold 210,000
Cash dividends declared (2017) 20,000
Cash dividends paid (2017) 15,000
Discontinued operations (loss before income taxes) 40,000
Depreciation expense, not recorded in 2016 30,000
Retained earnings, December 31, 2016 90,000
Effective tax rate 30%
Instructions
(a) Compute net income for 2017.
(b) Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 10,000 shares of common stock were outstanding during 2017.
E4-9 (L03,4,6) (Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to
Ivan Calderon Corp. for the year 2017.
Net sales $1,300,000 Write-off of inventory due to obsolescence $ 80,000
Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000
Selling expenses 65,000 Casualty loss 50,000
Administrative expenses 48,000 Cash dividends declared 45,000
Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000
Interest revenue 7,000 Effective tax rate of 34% on all items
Instructions
(a) Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
(b) Prepare a separate retained earnings statement for 2017.
E4-10 (L04) (Earnings per Share) The stockholders’ equity section of Hendly Corporation appears below as of December 31, 2017.
8% preferred stock, $50 par value, authorized
100,000 shares, outstanding 90,000 shares $ 4,500,000
Common stock, $1.00 par, authorized and issued 10 million shares 10,000,000
Additional paid-in capital 20,500,000
Retained earnings $134,000,000
Net income 33,000,000 167,000,000 $202,000,000
Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of $360,000 were declared and paid in 2017. Dividends of $1,000,000 were declared and paid to common stockholders in 2017.
Instructions
Compute earnings per share data as it should appear on the income statement of Hendly Corporation.
E4-11 (L03,4) (Condensed Income Statement—Periodic Inventory Method) The following are selected ledger accounts of Spock Corporation at December 31, 2017.
Cash $ 185,000 Salaries and wages expense (sales) $284,000
Inventory 535,000 Salaries and wages expense (office) 346,000
Sales revenue 4,275,000 Purchase returns 15,000
Unearned sales revenue 117,000 Sales returns and allowances 79,000
Purchases 2,786,000 Freight-in 72,000
Sales discounts 34,000 Accounts receivable 142,500
Purchase discounts 27,000 Sales commissions 83,000
Selling expenses 69,000 Telephone and Internet expense (sales) 17,000
Accounting and legal services 33,000 Utilities expense (office) 32,000
Insurance expense (office) 24,000 Miscellaneous office expenses 8,000
Advertising expense 54,000 Rent revenue 240,000
Delivery expense 93,000 Casualty loss (before tax) 70,000
Depreciation expense (office equipment) 48,000 Interest expense 176,000
Depreciation expense (sales equipment) 36,000 Common stock ($10 par) 900,000
Spock’s effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is $686,000.
Instructions
Prepare a condensed 2017 income statement for Spock Corporation.
E4-12 (L06) EXCEL (Retained Earnings Statement) Eddie Zambrano Corporation began operations on January 1, 2017.
During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.
Net Income Dividends Declared
2014 $ 40,000 $ –0–
2015 125,000 50,000
2016 160,000 50,000
The following information relates to 2017.
Income before income tax $240,000
Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 35,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2018) $100,000
Effective tax rate 40%
Instructions
(a) Prepare a 2017 retained earnings statement for Eddie Zambrano Corporation.
(b) Assume Eddie Zambrano Corporation restricted retained earnings in the amount of $70,000 on December 31, 2017.
After this action, what would Zambrano report as total retained earnings in its December 31, 2017, balance sheet?
E4-13 (L04) (Earnings per Share) At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.
10% cumulative preferred stock, $100 par, 107,500 shares $10,750,000
Common stock, $5 par, 4,000,000 shares 20,000,000
During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.
Income from continuing operations before taxes $23,650,000
Discontinued operations (loss before taxes) $ 3,225,000
Preferred dividends declared $ 1,075,000
Common dividends declared $ 2,200,000
Effective tax rate 35%
Instructions
Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)
E4-14 (L05) (Change in Accounting Principle) Tim Mattke Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below.
Weighted-
Year Average FIFO
2015 $370,000 $395,000
2016 390,000 430,000
2017 410,000 450,000
186 Chapter 4 Income Statement and Related Information
Instructions
(a) What is Mattke’s net income in 2017? Assume a 35% tax rate in all years.
(b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.
(c) Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2017 income statement.
E4-15 (L03,7) (Comprehensive Income) Roxanne Carter Corporation reported the following for 2017: net sales $1,200,000, cost of goods sold $750,000, selling and administrative expenses $320,000, and an unrealized holding gain on available-for-sale securities $18,000.
Instructions
Prepare a statement of comprehensive income, using (a) the one statement format, and (b) the two statement format. (Ignore income taxes and earnings per share.)
E4-16 (L06,7) (Comprehensive Income) C. Reither Co. reports the following information for 2017: sales revenue $700,000, cost of goods sold $500,000, operating expenses $80,000, and an unrealized holding loss on available-for-sale securities for 2017 of $60,000. It declared and paid a cash dividend of $10,000 in 2017.
C. Reither Co. has January 1, 2017, balances in common stock $350,000; accumulated other comprehensive income $80,000; and retained earnings $90,000. It issued no stock during 2017.
Instructions
Prepare a statement of stockholders’ equity.
E4-17 (L03,4,6,7) (Various Reporting Formats) The following information was taken from the records of Roland Carlson
Inc. for the year 2017: income tax applicable to income from continuing operations $187,000, income tax applicable to loss on discontinued operations $25,500, and unrealized holding gain on available-for-sale securities (net of tax) $15,000.
Gain on sale of equipment $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2017 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Loss on write-down of inventory 60,000 Sales revenue 1,900,000
Shares outstanding during 2017 were 100,000.
Instructions
(a) Prepare a single-step income statement.
(b) Prepare a comprehensive income statement for 2017, using the two statement format.
(c) Prepare a retained earnings statement for 2017.
