CH 04 Homework Solutions

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Stony Brook University *

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Accounting

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Apr 3, 2024

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CH 04 Homework Solutions 1. Exercise 4-06 ANSWER KEY STUDENT RESPONSES The following balances were taken from the books of Novak Corp. on December 31, 2020. Interest revenue $88,200 Accumulated depreciation—equipment $42,200 Cash 53,200 Accumulated depreciation—buildings 30,200 Sales revenue 1,382,200 Notes receivable 157,200 Accounts receivable 152,200 Selling expenses 196,200 Prepaid insurance 22,200 Accounts payable 172,200 Sales returns and allowances 152,200 Bonds payable 102,200 Allowance for doubtful accounts 9,200 Administrative and general expenses 99,200 Sales discounts 47,200 Accrued liabilities 34,200 Land 102,200 Interest expense 62,200 Equipment 202,200 Notes payable 102,200 Buildings 142,200 Loss from earthquake damage 152,200 Cost of goods sold 623,200 Common stock 502,200 Retained earnings 23,200 Assume the total effective tax rate on all items is 20%. Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year. (Round earnings per share to 2 decimal places, e.g. 1.48.) [ [0)7/.\ Qele] {2 Income Statement For the Year Ended December 31, 2020 v Sales v Sales Revenue $ 1,382,200 Less v : Sales Returns and Allowances $ 152,200 n Sales Discounts 47,200 n

Net Sales v Cost of Goods Sold Gross Profit/ (Loss) i Operating Expenses v Selling Expenses Administrative and General Expenses Income From Operations v Other Revenues and Gains v Interest Revenue Other Expenses and Losses v Loss from Earthquake Damage Interest Expense Income Before Income Tax v Income Tax Expense Net Income / (Loss) v Per share of common stock: Earnings Per Common Share v Solution Income taxexpense = ($138,000 x 20%) Net income = ($110,400 + 100,000) $27,600 $1.10 1,182,800 623,200 n 559,600 88,200 352,400

2. Exercise 4-13 ANSWER KEY STUDENT RESPONSES Exercise 4-13 View Policies At December 31,2019, Bonita Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 108,683 shares $10,868,300 Common stock, $5 par, 4,020,360 shares 20,101,800 During 2020, Bonita did not issue any additional common stock. The following also occurred during 2020. Income from continuing operations before taxes $24,842,300 Discontinued operations (loss before taxes) $3,478,000 Preferred dividends declared $1,086,830 Common dividends declared $1,995,600 Effective tax rate 35 % Compute earnings per share data as it should appear in the 2020 income statement of Bonita Corporation. (Round answers to 2 decimal places, e.g. 1.48.) Earnings Per Share Income from Continuing Operations v $ 375! Discontinued Operations v (0.56) n Net Income / (Loss) v $ 3.18

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Solution Net income: Income from continuing operations before income tax $24,842,300 Income tax (35% x $24,842,300) 8,694,805 Income from continuing operations 16,147,495 Discontinued operations Loss before income tax Less: Applicable income tax (35%) $3,478,000 1,217,300 (2,260,700 ) Net income $13,886,795 Preferred dividends declared: $1,086,830 Weighted average common shares outstanding 4,020,360 Earnings per share Income from continuing operations Discontinued operations, net of tax Net income ($16,147.495 - $1,086,830) + 4,020,360 $3.75 $2,260,700 + 4,020,360 (0.56 ) ($13,886,795 - $1086,830) + 4020360 = $318

3. Brief Exercise 4-02 Question30f 13 < ANSWER KEY STUDENT RESPONSES Wildhorse Corporation had net sales of $2,427,100 and interest revenue of $31,500 during 2020. Expenses for 2020 were cost of goods sold $1,467,100, administrative expenses $216,600, selling expenses $290,200, and interest expense $50,200. Wildhorse's tax rate is 30%. The corporation had 107,600 shares of common stock authorized and 74,270 shares issued and outstanding during 2020. Prepare a single-step income statement for the year ended December 31, 2020. (Round earnings per share to 2 decimal places, e.g. 1.48.) WILDHORSE CORPORATION Income Statement For the Year Ended December 31, 2020 Revenues v Net Sales $ 2,427,100 Interest Revenue 31,500 Total Revenues v 2,458,600 Expenses v Cost of Goods Sold 1467.100 n E Selling Expenses 290,200 n Administrative Expenses 216,600 n Interest Expense 50,200 n Income Tax Expense 130,350 n Total Expenses v 2,154,450 n Net Income / (Loss) v $ 304,150 n Earnings Per Share v $ 410 Solution Income tax expense = ($2,458,600 - $1,467,100 - $290,200 - $216,600 - $50,200) x 30% = $130,350 Earningspershare = $304,150 + 74,270 shares = $4.10

4. Exercise 4-15 ANSWER KEY ~ STUDENT RESPONSES 012 Correct 0 3 Partially Correct [ 14 Not Started Exercise 4-15 View Policies Question 4 of 13 Coronado Corporation reported the following for 2020: net sales $1,220,300, cost of goods sold $729,000, selling and administrative expenses $331,600, and an unrealized holding gain on available-for-sale debt securities $16,300. (a) Prepare a statement of comprehensive income using the one statement format. (Ignore income taxes and earnings per share.) CORONADO CORPORATION Statement of Comprehensive Income For the Year Ended December 31, 2020 v Net Sales v $ 1,220,300 Cost of Goods Sold v 729,000 n Gross Profit / (Loss) v 491,300 Selling and Administrative Expenses v 331,600 n Net Income / (Loss) v 159,700 Other Comprehensive Income Unrealized Holding Gain v 16,300 Comprehensive Income v $ 176,000

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(b) Prepare a statement of comprehensive income, using the two statement format. (Ignore income taxes and earnings per share.) RONADO CORPORATION Income Statement For the Year Ended December 31, 2020 v Net Sales v $ 1,220,300 Cost of Goods Sold v 729,000 n Gross Profit / (Loss) v 491,300 Selling and Administrative Expenses v 331,600 n Net Income / (Loss) v $ 159,700 CORONADO CORPORATION Comprehensive Income Statement For the Year Ended December 31, 2020 v Net Income / (Loss) v $ 159,700 Other Comprehensive Income Unrealized Holding Gain v 16,300 Comprehensive Income v $ 176,000 5. Brief Exercise 4-03 Question50f13 < ANSWERKEY ~ STUDENT RESPONSES Brief Exercise 4-03 View Policies Blossom Corporation had net sales of $2.423,900 and interest revenue of $39,100 during 2020. Expenses for 2020 were cost of goods sold $1,464,800, administrative expenses $218,000, selling expenses $283,500, and interest expense $54.200. Blossom's tax rate is 30%. The corporation had 103,100 shares of common stock authorized and 72,670 shares issued and outstanding during 2020. Prepare a condensed multiple-step income statement for Blossom Corporation. (Round earnings per share to 2 decimal places, eg. 1.48)

0SSOM CORPORATION Income Statement For the Year Ended December 31,2020 Net Sales Cost of Goods Sold Gross Profit / (Loss) Selling Expenses Administrative Expenses Income From Operations Other Revenues and Gains Interest Revenue Other Expenses and Losses Interest Expense Income Before Income Tax Income Tax Expense Net Income / (Loss) Earnings Per Share eTextbook and Media Solution Earnings per share = $309.750 + 72,670 shares = $4.26 959,100 501,500 n 457,600 39,100 15,100 n 442,500 132750 n $ 309,750 $ 426

6. Brief Exercise 4-08 Question60f 13 < ANSWER KEY ~ STUDENT RESPONSES O 15 Correct O 14 Not Started Brief Exercise 4-08 View Policies In 2020, Bonita Corporation reported net income of $1,069.600. It declared and paid preferred stock dividends of $259,800. During 2020, Bonita had a weighted average of 204,300 common shares outstanding. Compute Bonita’s 2020 earnings per share. (Round earnings per share to 2 decimal places, eg. 1.48.) Bonita's 2020 earnings per share $ 3.96 eTextbook and Media Solution $1,069.600 - $259,800 $3.96 pershare 204,300

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7. Exercise 4-02 ANSWER KEY ~ STUDENT RESPONSES Exercise 4-02 View Policies Presented below is information related to Waterway Company at December 31, 2020, the end of it first year of operations. Sales revenue $312.580 Cost of goods sold 140110 Selling and administrative expenses 26,800 Gain on sale of plant assets 30970 Unrealized gain on available-for-sale debt investments 10550 Interest expense 5460 Loss on discontinued operations 11850 Dividends declared and paid 4500 Compute the following: (a) Income from operations $ 125,670 (b) Netincome $ 139,330 © Comprehensiveincome $ 149,880 (d) Retained earnings balance at December 31,2020 $ 134,830

Solution Sales revenue $312,580 Cost of goods sold 140,110 Gross profit 172,470 Selling administrative expenses 46,800 Income from operations 125,670 (@ Other revenues and gains Gain on sale of plant assets 30,970 Other expenses and losses Interest expense 5460 Income from continuing operations 151,180 Loss on discontinued operations (11850 ) Net Income $139.330 (b Netincome $139.330 Unrealized gain on available-for-sale debt investments 10,550 Comprehensive income $149,880 (c) Netincome $139,330 Dividends (4500 ) 12/31/20 Retained earnings ~ $134,830 (d)

8. Brief Exercise 4-10 Question8of 13 < ANSWER KEY STUDENT RESPONSES Sheridan Corporation has retained earnings of $716,100 at January 1, 2020. Net income during 2020 was $1,454,700, and cash dividends declared and paid during 2020 totaled $84,000. Prepare a retained earnings statement for the year ended December 31, 2020. Assume an error was discovered: land costing $87,070 (net of tax) was charged to maintenance and repairs expense in 2019. (List items that increase retained earnings first.) SHERIDAN CORPORATION Retained Eamings Statement Retained Earnings, January 1, as Reported v $ 716,100 Correction for Overstatement of Expenses in Prior Period v 87,070 Retained Earnings, January 1, as Adjusted v 803,170 Add ¥ . NetIncome/(Loss) v 1,454,700 2,257,870 Lless v @ Cash Dividends v 84,000 n Retained Earnings, December 31 v $ 2,173,870 9. Brief Exercise 4-04 Question90f13 < ANSWER KEY ~ STUDENT RESPONSES Blue Corporation had income from continuing operations of $10,801,100 in 2020. During 2020, it disposed of its restaurant division at an after-tax loss of $199.400. Prior to disposal, the division operated at a loss of $319,400 (net of tax) in 2020 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Blue had 10,000,000 shares of common stock outstanding during 2020. Prepare a partial income statement for Blue beginning with income from continuing operations. (Round earnings per share to 2 decimal places, e. 1.48.) BLUE CORPORATION Income Statement (Partial mber 31, 2020 Income From Continuing Operations v $ 10,801,100 Discontinued Operations v Loss From Operation of Discontinued Restaurant Division Net of Tax v $ 319,400 n Loss From Disposal of Restaurant Division Net of Tax v 199,400 n 518,800 n Net Income / (Loss) v $ 10,282,300 Earnings Per Share v Income From Continuing Operations v $ 1.08 Discontinued Operations, Net of Tax v -0.05 n Net Income / (Loss) v $ 1.03

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10. Exercise 4-03 ANSWER KEY STUDENT RESPONSES Presented below are certain account balances of Concord Products Co. Rent revenue $7,400 Sales discounts $7.800 Interest expense 13,140 Selling expenses 99,650 Beginning retained earnings 114,780 Sales revenue 407,200 Ending retained earnings 134,960 Income tax expense 26,076 Dividend revenue 71,690 Cost of goods sold 193,771 Sales returns and allowances 12,700 Administrative expenses 85,750 Allocation to noncontrolling interest 17.640 From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) income attributable to controlling stockholders, if Concord has allocation to noncontrolling interest of $17,640. (a) Totalnetrevenue $ 465,790 (b) Net income $ 47,403 (c) Income attributable to controlling stockholders $ 29,763 Solution (a) Total net revenue: Sales revenue $407,200 Less: Sales discounts $7,800 Sales returns and allowances 12,700 20,500 Net sales 386,700 Dividend revenue 71,690 Rent revenue 7.400 Total net revenue $465,790

(b) Netincome: Total net revenue (from a) $465,790 Expenses: Cost of goods sold $193,771 Selling expenses 99.650 Administrative expenses 85.750 Interest expense 13,140 Total expenses 392311 Income before income tax 73479 Income tax Netincome (c) Income attributed to controlling stockholders = (Net income - Allocation to noncontrolling interest) Netincome 47,403 Allocation to noncontrolling interest. 17,640 Income attributable to controlling stockholders $29,763

11. Exercise 4-16 Question110f13 < ANSWERKEY ~ STUDENT RESPONSES Exercise 4-16 View Policies Vaughn Co. reports the following information for 2020: sales revenue $763,800, cost of goods sold $501,800, operating expenses $83,200, and an unrealized holding loss on available-for-sale debt securities for 2020 of $56,700. It declared and paid a cash dividend of $11,270in 2020. Vaughn Co. has January 1, 2020, balances in common stock $362,500; accumulated other comprehensive income $86,300; and retained earnings $94,270. It issued no stock during 2020. (Ignore income taxes.) Prepare a statement of stockholders’ equity. VAUGHN CO. et Accumulated Other Total Retained Earnings Comprehensive Income Common Stock Beginning Balance v $ 543,070 $ 94,270 $ 86,300 $ 362,500 Net Income v 178,800 178,800 Other Comprehensive Income Vv Unrealized Holding Loss v (56,700) n (56,700) n Dividends v (11,270) n (11,270) n Ending Balance v $ 653,900 $ 261,800 $ 29,600 $ 362,500 eTextbook and Media Solution Net income = ($763,800 - $501,800 - $83,200) = $178,800 12. Brief Exercise 4-09 Question 12 of 13 ANSWER KEY ~ STUDENT RESPONSES Brief Exercise 4-09 View Policies Blue Corporation has retained earnings of $704,900 at January 1, 2020. Net income during 2020 was $1,632,400, and cash dividends declared and paid during 2020 totaled $82,000. Prepare a retained earnings statement for the year ended December 31, 2020. (List items that increase retained earnings first.) BLUE CORPORATION Retained Eamings Statement For the Year Ended December 31,2020 Retained Earnings, January 1 v $ 704,900 Add v i Netincome/(Loss) v 1,632,400 2,337,300 Less v i | CashDividends v 82,000 n Retained Earnings, December 31 v $ 2,255,300

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13. Exercise 4-09 ANSWER KEY STUDENT RESPONSES Presented below is information related to Bramble Corp. for the year 2020. Net sales $1,378,000 Write-off of inventory due to obsolescence $84,800 Cost of goods sold 826,800 Depreciation expense omitted by accident in 2019 58,300 Selling expenses 68,900 Casualty loss 53,000 Administrative expenses 50,880 Cash dividends declared 47,700 Dividend revenue 21,200 Retained earnings at December 31, 2019 1,038,800 Interest revenue 7.420 Effective tax rate of 20% on all items (a) Prepare a multiple-step income statement for 2020. Assume that 64,448 shares of common stock are outstanding for the entire year. (Round earnings per share to 2 decimal places, e3. 1.49.) BRAMBLE CORP. JIncome Statement Revenue v Net Sales $ 1,378,000 Cost of Goods Sold 826,800 n Gross Profit/ (Loss) v 551,200 Operating Expenses v Selling Expenses $ 68,900 n Administrative Expenses 50880 n Total Operating Expenses v 119,780 n Income From Operations v 431,420 Other Revenues and Gains v

Dividend Revenue Interest Revenue Other Expenses and Losses Casualty Loss Write-off of Inventory Due to Obsolescence ¥ Income Before Income Tax v Income Tax Expense Net Income/ (Loss) v Earnings Per Common Share v Solution Income taxexpense = ($322,240x 20%) Netincome = ($257.792+64.448) 84,800 n $64,448 $4.00 21,200 7420 53,000 n 28,620 460,040 137,800 322,240 64,448 n 257,792 400

(b) Prepare a separate retained earnings statement for 2020. (List items that increase adjusted retained earnings first.) BRAMBLE CORP. Retained Earnings Statement For the Year Ended December 31, 2020 Retained Earnings, January 1, as reported v $ 1,038,800 Correction for Overstatement of Net Income in Prior Period ¥ (46,640) n Retained Earnings, January 1, as adjusted v 992,160 Add v Net Income / (Loss) ot 257,792 1,249,952 Less v @ Dividends Declared v 47,700 n Retained Earnings, December 31 v $ 1,202,252

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