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EXERCISE 4-5

 

Maria Conchita Alonzo Corp.

Income Statement

For the Year Ended December 31, 2004

Sales Revenue

 

 

      Sales

 

$1,380,000

      Less: Sales returns and allowances

$150,000

 

                 Sales discounts

    45,000

     195,000

      Net sales revenue

 

1,185,000

      Cost of goods sold

 

     621,000

Gross profit

 

564,000

 

 

 

Operating Expenses

 

 

            Selling expenses

194,000

 

            Admin. and general expenses

    97,000

    291,000

Income from operations

 

273,000

 

Other Revenues and Gains

 

 

            Interest revenue

 

      86,000

 

 

359,000

Other Expenses and Losses

 

 

            Interest expense

 

      60,000

 

 

 

Income before taxes and extraordinary item

 

299,000

            Income taxes ($299,000 X .34)

 

    101,660

Income before extraordinary item

 

197,340

Extraordinary item

 

 

            Loss from earthquake damage

150,000

 

            Less applicable tax reduction ($150,000 X .34)

    51,000

      99,000

Net income

 

$    98,340

 

Per share of common stock:

 

 

            Income before extraordinary item ($197,340 ¸ 100,000)

$1.97

            Extraordinary item (net of tax)

 

  (.99)

            Net income ($98,340 ¸ 100,000)

 

$  .98

EXERCISE 4-7

(a)    Net sales                                                                                                                              $  540,000

        Less:  Cost of Goods sold                                                                                                      (210,000)

                       Administrative Expenses                                                                                          (100,000)

                       Selling expenses                                                                                                         (80,000)

                       Discontinued operations-loss                                                                                     (40,000)

        Income before income taxes                                                                                                    110,000

        Income tax ($110,000 X .30)                                                                                                      33,000

        Net income                                                                                                                            $   77,000

(b)    Income from continuing operations before income tax                                                          $150,000*

            Income tax ($150,000 X .30)                                                                                                  45,000

        Income from continuing operations                                                                                          105,000

        Discontinued operations, less applicable income tax of

            $12,000                                                                                                                                  (28,000)

        Net income                                                                                                                             $  77,000

 

*$110,000 + $40,000

 

EXERCISE 4-10

 

Spock Corporation

 

Income Statement

 

For the Year Ended December 31, 2004

 

Net sales

 

 

$4,162,000

 

Cost of goods sold

 

 

  2,665,000

 

      Gross profit

 

 

1,497,000

 

Selling expenses

 

$636,000

 

 

Administrative expenses

 

  491,000

  1,127,000

 

      Income from operations

 

 

370,000

 

Other revenue

 

240,000

 

 

Other expense

 

(176,000)

       64,000

 

Income before taxes

 

 

434,000

 

      Income taxes ($434,000 X .34)

 

 

     147,560

 

Income before extraordinary item

 

 

286,440

 

Extraordinary loss, net of $23,800 taxes

 

 

       46,200

 

Net income

 

 

$   240,240

 

 

 

 

 

 

Earnings per share ($900,000 ¸ $10 par value = 90,000 shares)

 

 

      Income before extraordinary item ($286,440 ÷ 90,000)

 

$3.18

 

      Extraordinary item

 

 

   (.51)

      Net income

 

 

$2.67

 

 

Supporting computations

 

Net sales:

        $4,275,000 – $34,000 – $79,000 = $4,162,000

 

Cost of goods sold:

        $535,000 + ($2,786,000 + $72,000 – $27,000 – $15,000) – $686,000 = $2,665,000

Selling expenses:

        $284,000 + $83,000 + $69,000 + $54,000 + $93,000 + $36,000 + $17,000 = $636,000

 

Administrative expenses:

        $346,000 + $33,000 + $24,000 + $48,000 + $32,000 + $8,000 = $491,000

 

EXERCISE 4-12

 

Net income:

 

 

      Income from continuing operations
          before taxes

 


$23,650,000

      Income taxes (35% X $23,650,000)

 

   8,277,500

      Income from continuing operations

 

15,372,500

      Discontinued operations

 

 

            Loss before taxes

$3,225,000

 

            Less applicable income tax (35%)

  1,128,750

    2,096,250

      Net income

 

$13,276,250

 

 

 

Preferred dividends declared:

 

$  1,075,000

 

 

 

Weighted average common shares outstanding:

 

 

      12/31/03–3/31/04 (4,000,000 x 3/12)

 

1,000,000

      4/1/04–12/31/04 (4,400,000 x 9/12)

 

    3,300,000

            Weighted average

 

    4,300,000

 

Earnings per share

 

 

      Income from continuing operations

 

$3.33*

      Discontinued operations

 

   (.49)**

      Net income

 

$2.84***

 

   *($15,372,500 – $1,075,000)  ¸ 4,300,000.

  **$2,096,250 ¸ 4,300,000.

***($13,276,250 – $1,075,000) ¸ 4,300,000.

 

 

 

 

 

 

 

 

Income from continuing operations before
    income taxes

 


550,000

            Income taxes

 

    187,000

Income from continuing operations

 

363,000

Discontinued operations

 

 

            Loss on discontinued operations

$75,000

 

            Less applicable income tax reduction

  25,500

      49,500

Income before extraordinary items

 

313,500

Extraordinary items:

 

 

            Extraordinary gain

95,000

 

            Less applicable income tax

  32,300

      62,700

 

 

376,200

            Extraordinary loss

60,000

 

            Less applicable income tax reduction

  20,400

      39,600

Net income

 

$  336,600

 

Per share of common stock:

 

 

 

            Income from continuing operations ($363,000 ÷ 100,000)

$3.63

 

            Loss on discontinued operations, net of tax

   (.49)

            Income before extraordinary items ($313,500 ÷ 100,000)

3.14

 

            Extraordinary gain, net of tax

.63

 

            Extraordinary loss, net of tax

 

   (.40)

            Net income  ($336,600 ÷ 100,000)

 

$3.37

 

 

(b)                                                              Roland Carlson Inc.

Retained Earnings Statement

For the Year Ended December 31, 2004

Retained Earnings, January 1, 2004

 

$600,000

2004 Net Income

 

  336,600

 

 

$936,600

Dividends Declared

 

(150,000)

Retained Earnings, December 31, 2004

 

$786,600

 


 

 

(c)                                                             Roland Carlson Inc.

Statement of Comprehensive Income

For the Year Ended December 31, 2004

Net Income

 

$336,600

Other Comprehensive Income

 

 

      Unrealized Holding Gain

 

    15,000

Comprehensive Income

 

$351,600

 

 

 

PROBLEM 4-1

 

 

American Horse Company

Income Statement

For the Year Ended December 31, 2004

Sales

 

$25,000,000

Less cost of goods sold

 

  17,000,000

Gross profit

 

8,000,000

Less selling and administrative expenses

 

    4,700,000

Income from operations

 

3,300,000

Other revenues and gains

 

 

            Interest revenue

$  70,000

 

            Gain on the sale of investments

  110,000

180,000

Other expenses and losses

 

 

            Write-off of goodwill

 

       820,000

Income from continuing operations before
    income taxes

 


2,660,000

Income taxes

 

       905,000

Income from continuing operations

 

1,755,000

Discontinued operations

 

 

            Loss on operations, net of tax

90,000

 

            Loss on disposal, net of tax

  440,000

       530,000

Income before extraordinary item

 

1,225,000

Extraordinary loss from flood damage, net of
    tax

 


       390,000

Net income

 

$     835,000

 

 

 

 

 

 

 

 

American Horse Company

Retained Earnings Statement

For the Year Ended December 31, 2004

 

Retained Earnings, January 1, 2004

 

       980,000

Plus net income

 

      835,000

 

 

1,815,000

Less dividends

 

 

            Preferred stock

70,000

 

            Common stock

  250,000

       320,000

Retained Earnings, December 31,2004

 

$  1,495,000

 

 

Earnings per share:

 

 

 

            Income from continuing operations

 

$  5.62a

            Discontinued operations

 

 

                        Loss on operations (net of tax)

$(  .30)

 

                        Loss on disposal (net of tax)

  (1.47)

(1.77)

            Income before extraordinary item

 

3.85b

            Extraordinary loss (net of tax)

 

 

(1.30)

            Net income

 

 

$ 2.55c

 

a

$1,755,000 – $70,000

=

$5.62

 

300,000 shares

 

 

 

 

b

$1,225,000 – $70,000

=

$3.85

 

300,000 shares

 

 

 

 

c

$835,000 – $70,000

=

$2.55

 

300,000 shares

 

 

PROBLEM 4-4

 

 

 

(a)                                                          J. R. Reid Corporation

 

Income Statement

 

For the Year Ended June 30, 2004

 

Sales Revenue

 

 

 

      Sales

 

$1,678,500

 

      Less: Sales discounts

$31,150

 

 

                 Sales returns

  62,300

       93,450

 

      Net sales

 

1,585,050

 

Cost of Goods Sold

 

     896,770

 

Gross profit

 

688,280

 

 

 

 

 

Operating Expenses

 

 

 

      Selling expenses

 

 

 

            Sales commissions

$97,600

 

 

 

            Sales salaries

56,260

 

 

 

            Travel expense

28,930

 

 

 

            Entertainment expense

14,820

 

 

 

            Freight-out

21,400

 

 

 

            Telephone and internet exp.

9,030

 

 

 

            Depr. of sales equipment

4,980

 

 

 

            Building expense

6,200

 

 

 

            Bad debt expense

4,850

 

 

 

            Misc. selling expense

    4,715

248,785

 

Administrative Expenses

 

 

      Real estate and other local taxes                                    7,320

 

 

      Building expense

9,130

 

 

      Depreciation of office
          furniture and equipment


7,250

 

 

      Office supplies used

3,450

 

 

      Telephone and internet expense

2,820

 

 

      Miscellaneous office
          expenses


    6,000


    35,970


    284,755

Income from operations

 

 

403,525

 

Other Revenues and Gains

 

 

 

      Dividend revenue

 

 

      38,000

 

 

 

441,525

Other Expenses and Losses

 

 

 

      Bond interest expense

 

 

      18,000

 

 

 

 

Income before taxes

 

 

423,525

      Income taxes

 

 

    133,000

Net income

 

 

$  290,525

Earnings per common share
   ($290,525 – $9,000 of preferred
   dividends
¸ 80,000 shares)

 

 



$3.52

 

J. R. Reid Corporation

 

Retained Earnings Statement

 

For the Year Ended June 30, 2004

 

Retained earnings, July 1, 2003
   as reported

 


$337,000

 

 

Correction of depreciation
   understatement (net of tax)

 


    17,700

 

 

Adjusted balance of retained
   earnings at July 1, 2003

 

 


    $319,300

 

Plus net income

 

 

  290,525

 

 

 

 

609,825

 

Deduct:

 

 

 

 

      Dividends declared on preferred stock

9,000

 

 

      Dividends declared on common stock

    32,000

    41,000

 

Retained earnings, June 30, 2004

 

 

$568,825

 

 

 

(b)                                                            J. R. Reid Corporation

 

Income Statement

 

For the Year Ended June 30, 2004

 

Revenues

 

 

 

            Net sales

 

$1,585,050

 

            Dividend revenue

 

       38,000

 

                        Total revenues

 

  1,623,050

 

Expenses

 

 

 

            Cost of goods sold

 

896,770

 

            Selling expenses

 

248,785

 

            Administrative expenses

 

35,970

 

            Bond interest expense

 

       18,000

 

                        Total expenses

 

  1,199,525

 

Income before taxes

 

423,525

 

            Income taxes

 

     133,000

 

Net income

 

$   290,525

 

Earnings per common share

 

$3.52

 

J. R. Reid Corporation

 

Retained Earnings Statement

 

For the Year Ended June 30, 2004

 

 

Retained earnings, July 1, 2003 as reported

$337,000

 

 

Correction of depreciation understatement
    (net of tax)


    17,700

 

 

Retained earnings, July 1, 2003 adjusted

 

$319,300

 

Plus net income

 

  290,525

 

 

 

609,825

 

Deduct:

 

 

 

            Dividends declared on preferred stock

9,000

 

 

            Dividends declared on common stock

    32,000

    41,000

 

Retained earnings, June 30, 2004

 

$568,825

 

 

PROBLEM 4-6

 

 

 

LeClair Corp.

Retained Earnings Statement

For the Year Ended December 31, 2004

Retained Earnings, January 1 as reported

$257,600

Correction of error from prior period (net of tax)

    25,400

Adjusted balance of retained earnings at January 1

283,000

Add net income

44,100*

Deduct cash dividends declared

    32,000

Retained earnings, December 31

$295,100

*$44,100 = ($84,500 + $41,200 + $21,600 – $25,000 – $60,000 – $18,200)

 

 

(b)        1.         Gain on sale of investments—body of income statement, possibly unusual item

            2.         Refund of litigation—body of income statement, possibly unusual item.

1.                                          Loss on discontinued operations—body of the income statement, following the caption, “Income from continuing operations.”

2.                                          Write-off of goodwill—body of income statement, possibly unusual item.

3.                                          Cumulative effect of change in depreciation method—body of the income statement, following the caption, “Income before extraordinary item and cumulative effect of change in account­ing principle.” If an extraordinary item is reported, the cumula­tive effect would be reported below this item.

 

Earnings per share:

            Income from continuing operations ($105,000 ÷ 10,000)                                                      $10.50

            Loss on discontinued operations                                                                                              (2.80)

            Net Income ($77,000 ÷ 10,000)                                                                                                $7.70