ch4s - EXERCISE42(a Totalnetrevenue Sales...

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EXERCISE 4-2  (a) Total net revenue: Sales $390,000 Less:  Sales discounts $  7,800             Sales returns    12,400          20,200 Net sales 369,800 Dividend revenue 71,000 Rental revenue            6,500 Total net revenue $447,300 (b) Net income: Total net revenue (from a) $447,300 Expenses:       Cost of goods sold 184,400       Selling expenses 99,400       Administrative expenses 82,500       Interest expense          12,700             Total expenses    379,000 Income before income tax 68,300 Income tax          31,000       Net income $  37,300 (c) Dividends declared: Ending retained earnings $134,000 Beginning retained earnings       114,400 Net increase 19,600 Less: Net income         (37,300 ) Dividends declared $  17,700
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EXERCISE 4-2 (Continued) ALTERNATE SOLUTION Beginning retained earnings $114,400 Add: Net income          37,300 151,700 Less: Dividends declared            ?            Ending retained earnings $134,000 Dividends declared must be $17,700     ($151,700 – $134,000) EXERCISE 4-3  LeRoi Jones Inc. Income Statement For Year Ended December 31, 2007 Revenues Net sales ($1,250,000 (b)  – $17,000) .......................... $1,233,000 Expenses Cost of goods sold .................................................. 500,000 Selling expenses ..................................................... 400,000 (c) Administrative expenses ........................................ 100,000 (a) Interest expense ......................................................             20,000 Total expenses ...............................................    1,020,000 Income before income tax ................................................. 213,000 Income tax ................................................................             63,900 Net income  ......................................................................... $   149,100 Earnings per share ............................................................ $         7.46 *
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EXERCISE 4-3 (Continued) Determination of amounts (a) Administrative expenses = 20% of cost of good sold = 20% of $500,000 = $100,000 (b) Gross sales X 8% = administrative expenses = $100,000  ÷  8% = $1,250,000 (c) Selling expenses = four times administrative expenses. (operating expenses consist of selling and administrative expenses; since  selling expenses are 4/5 of operating  expenses, selling expenses are 4  times administrative expenses.) = 4 X $100,000 = $400,000 Earnings per share $7.46 ($149,100  ÷  20,000) Note:   An alternative income statement format is to show income tax a part of expenses, and not as a separate item. In this case, total expenses are $1,083,900.
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