Chapter 4, Problem 4.7P

(1)

To determine

Income statement:

Income statement is one form of financial statement which reports revenues and expenses from business operations and the result of those operations are reported as net income or net loss for a particular time period.

Statement of comprehensive income:

It is a statement prepared to determine the total revenue, expenses, gains and losses in the reported year that includes some unusual and extraordinary transactions that may not always affect the changes in owner’s equity.

To prepare: The single, continuous multi-step statement of comprehensive income including EPS disclosure of Corporation SM for the year ended December 31, 2016.

Answer to Problem 4.7P

Corporation SM
Statement of Comprehensive Income
For the year ended December 31, 2016
Particulars	Amount (in '000s)	Amount (in '000s)
Sales revenue		$15,300
Cost of goods sold		-$6,200
Gross profit		$9,100
Operating expenses:
Selling	$1,300
General and administrative	$800
Restructuring costs	$1,200
Total operating expenses		-$3,300
Operating income		$5,800
Other income (expense):
Loss on sales of investments	-$220
Interest expense	-$180
Interest revenue	$85
Other income (expense)		-$315
Income from continuing operations before income tax		$5,485
Income tax expense (1)		-$2,194
Income from continuing operations		$3,291
Discontinued operations:
Income from operations of discontinued component    (including gain on disposal of $1,400) (2)	$840
Income tax expense (3)	-$336
Income on discontinued operations		$504
Net income		$3,795
Other comprehensive income (loss):
Unrealized gains from investments, net of tax (4)	$192
Loss from foreign currency translation, net of tax (5)	-$144
Total other comprehensive income		$48
Comprehensive income		$3,843
Earnings per share:
Income from continuing operations (6)	$2.74
Discontinued operations  (8)	-$0.42
Net income	$3.16

Table (1)

Explanation of Solution

Working Notes:

Determine the amount of income tax expense.

$\begin{array}{c}\text{Amount of income tax expense}\}=\left(\begin{array}{l}\text{Income from continuing }\\ \text{operations before income tax}\end{array}\right)\times \frac{\text{Rate of tax}}{100}\\ \text{=\$5,485}\times \frac{40}{100}\\ \text{=\$2,194}\end{array}$ (1)

Determine the amount of income from operations of discontinued component.

$\begin{array}{c}\begin{array}{l}\text{Amount of income from operations}\\ \text{ of discontinued component}\end{array}\}=\left(\begin{array}{l}\text{Amount of gain from}\\ \text{ sale of asset}\end{array}\right)-\left(\begin{array}{l}\text{Amount of loss }\\ \text{from operations}\end{array}\right)\\ \text{=\$1,400}-\$560\\ \text{=\$840}\end{array}$ (2)

Determine the amount of income tax expense of income from operations of discontinued component.

$\begin{array}{c}\begin{array}{l}\text{Amount of income tax expense}\\ \text{of income from operations of}\\ \text{discontinued component}\end{array}\}=\left(\begin{array}{l}\text{Income from operations of }\\ \text{discontinued component }\end{array}\right)\times \frac{\text{Rate of tax}}{100}\\ \text{=\$840}\times \frac{40}{100}\\ \text{=\$336}\end{array}$ (3)

Determine the amount of net of tax on unrealized gains from investments.

$\begin{array}{c}\begin{array}{l}\text{Net of tax amount on unrealized }\\ \text{gains on investment securities}\end{array}\}=\left\{\begin{array}{l}\text{Unrealized gains on }\\ \text{investment securities}\times \left(1-\text{Tax rate}\right)\end{array}\right\}\\ \text{=\$320}\times \left(1-40\%\right)\\ \text{=\$192 }\end{array}$ (4)

Determine the amount of net of tax on loss from foreign currency translation.

$\begin{array}{c}\begin{array}{l}\text{Net of tax amount on loss }\\ \text{from foreign currency translation}\end{array}\}=\left\{\begin{array}{l}\text{Loss from foreign }\\ \text{currency translation}\times \left(1-\text{Tax rate}\right)\end{array}\right\}\\ \text{=\$240}\times \left(1-40\%\right)\\ \text{=\$144}\end{array}$ (5)

Determine the amount of earning per share of income from continued operations.

$\begin{array}{c}\text{Earning per share}=\frac{\text{Income from continued operations}}{\text{Number of common stock outstanding }\left(7\right)}\\ \text{=}\frac{\$3,291}{1.2}\\ \text{= \$2}\text{.74}\end{array}$ (6)

Determine the number of common stock outstanding.

$\begin{array}{c}\begin{array}{c}\text{Number of common}\\ \text{ stock outstanding}\end{array}\}=\left(\begin{array}{l}\text{Common stock at the }\\ \text{beginning of the year}\end{array}\right)+\left\{\left(\begin{array}{l}\text{Common stock issued at }\\ \text{the middle of the year}\end{array}\right)\times \frac{6}{12}\right\}\\ \text{=}\left(1\text{ million}\right)+\left\{\left(0.4\text{ million}\right)\times \frac{6}{12}\right\}\\ \text{= }\left(1\text{ million}\right)+\left\{0.2\text{ million}\right\}\\ =1.2\text{ millions}\end{array}$ (7)

Determine the amount of earning per share of income from discontinued operations.

$\begin{array}{c}\text{Earning per share}=\frac{\text{Income from discontinued operations}}{\text{Number of common stock outstanding }\left(7\right)}\\ \text{=}\frac{\$504}{1.2}\\ \text{= \$2}\text{.74}\end{array}$ (8)

Conclusion

The net income of Corporation SM for the year ended December 31, 2016 is $3,795.

(2)

To determine

To prepare: The statement of comprehensive income of Corporation SM for the year ended December 31, 2016.

Answer to Problem 4.7P

Corporation SM
Statement of Comprehensive Income
For the year ended December 31, 2016
Particulars	Amount (in '000s)	Amount (in '000s)
Net income		$3,795
Other comprehensive income (loss):
Unrealized gains from investments, net of tax (9)	$192
Loss from foreign currency translation, net of tax  (10)	-$144
Total other comprehensive income		$48
Comprehensive income		$3,843

Table (2)

Explanation of Solution

Working Notes:

Determine the amount of net of tax on unrealized gains from investments.

$\begin{array}{c}\begin{array}{l}\text{Net of tax amount on unrealized }\\ \text{gains on investment securities}\end{array}\}=\left\{\begin{array}{l}\text{Unrealized gains on }\\ \text{investment securities}\times \left(1-\text{Tax rate}\right)\end{array}\right\}\\ \text{=\$320}\times \left(1-40\%\right)\\ \text{=\$192 }\end{array}$ (9)

Determine the amount of net of tax on loss from foreign currency translation.

$\begin{array}{c}\begin{array}{l}\text{Net of tax amount on loss }\\ \text{from foreign currency translation}\end{array}\}=\left\{\begin{array}{l}\text{Loss from foreign }\\ \text{currency translation}\times \left(1-\text{Tax rate}\right)\end{array}\right\}\\ \text{=\$240}\times \left(1-40\%\right)\\ \text{=\$144}\end{array}$ (10)

Conclusion

Thus, comprehensive income for the year ended December 31, 2016 is $3,843.