Chapter 4 Textbook Exercises Solutions.pdf - 3 Some situations in which changes in value are not recorded in income are(a Unrealized gains or losses on

Chapter 4 Textbook Exercises Solutions.pdf - 3 Some...

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3. Some situations in which changes in value are not recorded in income are: (a) Unrealized gains or losses on available-for-sale investments, (b) Changes in the fair values of long-term liabilities, such as bonds payable, (c) Changes (increases) in value of property, plant and equipment, such as land, natural resources, or equipment, (d) Changes (increases) in the values of intangible assets such as customer goodwill, brand value, or intellectual capital. Note that some of these omissions arise because the items (e.g., brand value) are not recognized in financial statements, while others (value of land) are recorded in financial statements but measurement is at historical cost. 10. The major distinction between revenues and gains (or expenses and losses) depends on the typical activities of the company. Revenues can occur from a variety of different sources, but these sources constitute the entity’s ongoing major or central operations. Gains also can arise from many different sources, but these sources occur from peripheral or incidental transactions of an entity. The same type of distinction is made between expenses and losses. EXERCISE 4-3 (a) Total net revenue: Sales revenue ................................................................ $390,000 Less: Sales discounts .................................................. $ 7,800 Sales returns and allowances .......................... 12,400 20,200 Net sales ......................................................................... 369,800 Dividend revenue .......................................................... 71,000 Rent 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
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Income before income tax ............................................ 68,300 Income tax ...................................................................... 31,000 Net income ............................................................... $ 37,300 (c) Dividends declared: Ending retained earnings ............................................. $125,000 Beginning retained earnings ........................................ 114,400 Net increase .............................................................................. 10,600 Less: Net income (attributed to controlling shareholders) .. 20,300* Dividends declared .................................................................. $ 9,700 * $37,300-$17,000 ALTERNATE SOLUTION Beginning retained earnings ....................................................... $114,400 Add: Net income ........................................................................... 20,300* 134,700 Less: Dividends declared ............................................................ ?
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