Week 4 Assignment

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School

Pomona College *

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4510

Subject

Accounting

Date

Apr 3, 2024

Type

xlsx

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Uploaded by CommodoreGull4135

E4-5 (LO 2,3) Multiple-Step and Single-Step Statements 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 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).

Instructions (a) P. BRIDE COMPANY Income Statement For the Year Ended December 31, 2017 (In thousands, except earnings per share) Sales Revenue $ 96,500 Cost of Goods Sold $ 60,570 Gross Profit $ 35,930 Operating Expenses Delivery Expense $ 2,690 Sales Commission $ 7,980 Depreciation Expense $ 6,480 TOTAL SELLING EXPENSES $ 17,150 Officers' Salaries $ 4,900 Depreciation of Furniture Expense $ 3,960 TOTAL ADMINISTRATIVE EXPENSES $ 8,860 $ 26,010 INCOME FROM OPERATIONS $ 9,920 Other Revenues and Gains Rent Revenue $ 17,230 $ 27,150 Other Expenses and Losses Interest Expense $ 1,860 Income Before Income Tax $ 25,290 Income Tax Expense $ 9,070 Net income $ 16,220 Earnings per Share (16,220/40,550) $ 0.40 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. P. BRIDE COMPANY Income Statement For the Year Ended December 31, 2017 (In thousands, except earnings per share) Revenues Sales Revenue $ 96,500 Rent Revenue $ 17,230 Total Revenue $ 113,730 Expenses Cost of Goods Sold $ 60,570 Selling Expenses $ 17,150 Administrative Expenses $ 8,860 Interest Expense $ 1,860 Total Expenses $ 88,440 Income before Income Tax $ 25,290 Income Tax Expense $ 9,070 Net Income $ 16,220 Earnings per share (16,220/40,550) $ 0.40 (c) Which one do you prefer? Discuss. When putting these income statements together, I prefer the single step income statement because it is much more condensed and easier. If I were an external user, I would prefer the multistep income statement because it is more insightful and breaks down expenses further than the single step.

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E4-12 (LO 6) Retained Earnings Statement Net Income Dividends Declared 2014 $ 40,000 $ - 2015 125,000 50,000 2016 160,000 50,000 The following information relates to 2017. Income before income tax Prior period adjustment: understatement of 2015 depreciation expense (before taxes) Cumulative decrease in income from change in inventory methods, (before taxes) Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2018) Effective tax rate Instructions: (a) Prepare a 2017 retained earnings statement for Eddie Zambrano Corporation. Calculation of net income for 2017: Balance January 1 $ 225,000 Correction for depreciation error $ (15,000) Change in inventory methods $ (21,000) Adjusted Balance January 1, 2017 189,000 Add: Net income after taxes $ 144,000 Calculation of beginning retained earnings: Retained Earnings $ 225,000 Correction for depreciation error $ 15,000 Change in inventory methods $ 21,000 Adjusted Balance January 1, 2017 $ 189,000 Add: Net income after taxes $ 144,000 $ 333,000 Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 operations, Zambrano reported net income and declared dividends as follows.

EDDIE ZAMBRANO CORPORATION Retained Earnings Statement For the Year Ended December 31, 2017 Balance January 1 Correction for depreciation error Cumulative decrease in income from change in inventory methods Adjusted Balance January 1, 2017 Add: Net income after taxes Less: Dividends declared Balance on December 31, 2017 (b) Retained Earnings (restricted) Retained Earnings (unrestricted) Total Retained Earnings Balance Retained earnings: Appropriated Unappropriated Total Assume Eddie Zambrano Corporation restricted retained earnings in the amoun on December 31, 2017. After this action, what would Zambrano report as total re earnings in its December 31, 2017, balance sheet?

$ 240,000 25,000 35,000 100,000 40% 3 years of

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$ 225,000 $ 15,000 $ 21,000 $ 189,000 $ 144,000 $ 333,000 $ 100,000 $ 233,000 $ 70,000 $ 163,000 $ 233,000 nt of $70,000 etained

P4-2 (LO 3, 4, 6) Single-Step Statement, Retained Earnings Statement, Periodic Inventory Presented below is the trial balance of Thompson Corporation at December 31, 2017. THOMPSON CORPORATION Trial Balance December 31, 2017 Debit Credit Purchase Discounts $ 10,000 Cash $ 189,700 Accounts Receivable 105,000 Rent Revenue 18,000 Retained Earnings 160,000 Salaries and Wages Payable 18,000 Sales Revenue 1,100,000 Notes Receivable 110,000 Accounts Payable 49,000 Accumulated Depreciation—Equipment 28,000 Sales Discounts 14,500 Sales Returns and Allowances 17,500 Notes Payable 70,000 Selling Expenses 232,000 Administrative Expenses 99,000 Common Stock 300,000 Income Tax Expense 53,900 Cash Dividends 45,000 Allowance for Doubtful Accounts 5,000 Supplies 14,000 Freight-In 20,000 Land 70,000 Equipment 140,000 Bonds Payable 100,000 Gain on Sale of Land 30,000 Accumulated Depreciation - Buildings 19,600 Inventory 89,000 Buildings 98,000 Purchases 610,000 Totals $ 1,907,600 $ 1,907,600 A physical count of inventory on December 31 resulted in an inventory amount of $64,000; thus, cost of goods sold for 2017 is $645,000.

Instructions THOMPSON CORPORATION Income Statement For the Year Ended December 31, 2017 Revenues Sales Revenue $ 1,100,000 Rent Revenue $ 18,000 Gain on Sale of Land $ 30,000 Less: Sales discounts/returns allowances $ (32,000) Total Revenues $ 1,116,000 Expenses Cost of Goods Sold $ 645,000 Administrative Expenses $ 99,000 Selling Expenses $ 232,000 TOTAL EXPENSES $ 976,000 Income Before Income Taxes $ 140,000 Income Tax Expenses $ 53,900 Net Income $ 86,100 Earnings per Share (86,100/30,000) $ 2.87 THOMPSON CORPORATION Retained Earnings Statement For the Year Ended December 31, 2017 Opening Balance of Retained Earnings $ 160,000 Add: Net Income $ 86,100 Less: Cash Dividends (45,000) Closing Balance of Retained Earnings 201,100 Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends. Thirty thousand shares of common stock were outstanding the entire year.

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P4-3 (LO 3,4) Various Income-Related Items 1. 2. 3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax). 4. 5. 6. Instructions: Computation of income from continuing operations before taxes: As previously stated $ 790,000 Loss on Sale of Securities $ (57,000) Gain on Proceeds of Life Insurance Policy $ 104,000 Depreciation error Computed (54,000/6) $ 9,000 Corrected (54,000 - 9,000/6) $ 7,500 $ 1,500 Income From Continuing Operations $ 838,500 Maher Inc. reported income from continuing operations before taxes during 2017 of $790,000. Additional transactions occurring in 2017 but not considered in the $790,000 are as follows. The corporation experienced an uninsured flood loss in the amount of $90,000 during the year. At the beginning of 2015, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base. When its president died, the corporation realized $150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000 (the gain is nontaxable). The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The corporation decided to change its method of inventory pricing from average- cost to the FIFO method. The effect of this change on prior years is to increase 2015 income by $60,000 and decrease 2016 income by $20,000 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%. Prepare an income statement for the year 2017 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

Computation of income tax: Income From Continuing Operations $ 838,500 Less: Nontaxable Income (Insurance claim gain) $ (104,000) Taxable Income $ 734,500 Tax Rate 30% Income Tax Expense $ 220,350 MAHER INC. Income Statement (Partial) For the Year Ended December 31, 2017 Income from Continuing Operations (before tax) $ 838,500 Less: Income Tax Expense $ (220,350) Income from Continuing Operations $ 618,150 Loss on Disposal of Recreational Division $ 115,000 Less: Income Tax 30% $ (34,500) $ (80,500) Income Before Extraordinary Items $ 537,650 Loss From Flood $ 90,000 Less: Income Tax 30% $ (27,000) $ (63,000) Net Income $ 474,650 Per share of common stock: Income from Continuing Operations (618,150/120,000) 5.15 Discontinued Operations (80,500/120,000) (0.67) Net Income (474,650/120,000) 3.96