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The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical data related to the income statement as follows.
\r\n1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year.
\r\n2. Sales discounts amount to $17,000.
\r\n3. 20,000 shares of common stock were outstanding for the entire year.
\r\n4. Interest expense was $20,000.
\r\n5. The income tax rate is 30%.
\r\n6. Cost of goods sold amounts to $500,000.
\r\n7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.
\r\n8. Four-fifths of the operating expenses relate to sales activities.
\r\nInstructions
\r\nFrom the foregoing information prepare an income statement for the year 2014 in single-step form.
Presented below are certain account balances of Paczki Products Co.
\r\nRent revenue $ 6,500 Sales discounts $ 7,800
\r\nInterest expense 12,700 Selling expenses 99,400
\r\nBeginning retained earnings 114,400 Sales revenue 390,000
\r\nEnding retained earnings 134,000 Income tax expense 31,000
\r\nDividend revenue 71,000 Cost of goods sold 184,400
\r\nSales returns and allowances 12,400 Administrative expenses 82,500
\r\nAllocation to noncontrolling interest 17,000
\r\nInstructions
\r\nFrom the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.
Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations.
\r\nSales revenue $310,000
\r\nCost of goods sold 140,000
\r\nSelling and administrative expenses 50,000
\r\nGain on sale of plant assets 30,000
\r\nUnrealized gain on available-for-sale investments 10,000
\r\nInterest expense 6,000
\r\nLoss on discontinued operations 12,000
\r\nAllocation to noncontrolling interest 40,000
\r\nDividends declared and paid 5,000
\r\nInstructions
\r\nCompute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel
\r\nCompany’s controlling shareholders, (d) comprehensive income, and (e) retained earnings balance at
\r\nDecember 31, 2014.
Presented below are changes in all the account balances of Fritz Reiner Furniture Co. during the current year, except for retained earnings. Increase Increase
\r\n(Decrease) (Decrease) Cash $ 79,000 Accounts Payable $ (51,000)
\r\nAccounts Receivable (net) 45,000 Bonds Payable 82,000 Inventory 127,000 Common Stock 125,000
\r\nInvestments (47,000) Paid-In Capital in Excess of Par—Common Stock 13,000
\r\nInstructions
\r\nCompute 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.
On January 1, 2014, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2014, it purchased for cash $20,000 of equity securities that it classified as available-for-sale. It received cash dividends of $3,000 during the year on these securities. In addition, it has an unrealized holding gain on these securities of $4,000 net of tax.
\r\nDetermine the following amounts for 2014: (a) net income, (b) comprehensive income, (c) other comprehensive income, and (d) accumulated other comprehensive income (end of 2014).
Using the information from BE4-9, prepare a retained earnings statement for the year ended
\r\nDecember 31, 2014. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2011.
Portman Corporation has retained earnings of $675,000 at January 1, 2014. Net income during 2014 was $1,400,000, and cash dividends declared and paid during 2014 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2014.
In 2014, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2014, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2014 earnings per share.
Vandross Company has recorded bad debt expense in the past at a rate of 1½% of net sales. In 2014,
\r\nVandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $380,000 instead of $285,000. In 2014, bad debt expense will be $120,000 instead of $90,000. If Vandross’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?
During 2014, Williamson Company changed from FIFO to weighted-average inventory pricing.
\r\nPretax income in 2013 and 2012 (Williamson’s first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been $145,000 in 2013 and $170,000 in 2012. In 2014, Williamson Company reported pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson Company, beginning with “Income before income tax,” as presented on the 2014 income statement. (The tax rate in all years is 30%.)
Stacy Corporation had income before income taxes for 2014 of $6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation’s tax rate is 30%. Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation had 5,000,000 shares of common stock outstanding during 2014.
Finley Corporation had income from continuing operations of $10,600,000 in 2014. During 2014, it disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2014. Finley had 10,000,000 shares of common stock outstanding during 2014. Prepare a partial income statement for Finley beginning with income from continuing operations.
Using the information provided in BE4-2, prepare a condensed multiple-step income statement for
\r\nBrisky Corporation.
Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014.
\r\nExpenses for 2014 were cost of goods sold $1,450,000; administrative expenses $212,000; selling expenses $280,000; and interest expense $45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2014. Prepare a single-step income statement for the year ended December 31, 2014.
Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were:
\r\nCost of goods sold $330,000
\r\nSalaries and wages expense 120,000
\r\nIncome tax expense 25,000
\r\nIncrease in value of company reputation 15,000
\r\nOther operating expenses 10,000
\r\nUnrealized gain on value of patents 20,000
\r\nPrepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.
How should the disposal of a component of a business be disclosed in the income statement?
What are the two ways that other comprehensive income may be displayed (reported)?
What is meant by the terms elements and items as they relate to the income statement? Why might items have to be disclosed in the income statement?
State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.
Generally accepted accounting principles usually require the use of accrual accounting to “fairly present” income. If the cash receipts and disbursements method of accounting will “clearly reflect” taxable income, why does this method not usually also “fairly present” income?
What major types of items are reported in the retained earnings statement?
Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Discuss.
On January 30, 2013, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2014, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should this settlement be reported in the 2014 financial statements? Discuss.
During 2014, Liselotte Company earned income of $1,500,000 before income taxes and realized a gain of $450,000 on a government-forced condemnation sale of a division plant facility. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%.
\r\nProper accounting suggests that the unusual gain be reported as an extraordinary item. Illustrate an appropriate presentation of these items in the income statement.
When does tax allocation within a period become necessary? How should this allocation be handled?
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