Chapter 4 IS and RE statement Soll - Chapter 04 BRIEF...

Chapter 04
BRIEF EXERCISE 4-1
Tim Allen Co.
Income Statement
For the Year 2007
Revenues
Sales $540,000
Expenses
Cost of goods sold ............................................................. $320,000
Wage expense ..................................................................... 120,000
Other operating expenses .................................................. 10,000
Income tax expense ............................................................ 25,000
Total expenses ......................................................... 475,000
Net income ....................................................................................... $65,000
Earnings per share .......................................................................... $0.65*
*$65,000 ÷ 100,000 shares.
Note: The increase in value of the company reputation and the unrealized
gain on the value of patents are not reported.
BRIEF EXERCISE 4-2
Turner Corporation
Income Statement
For the Year Ended December 31, 2007
Revenues
Net sales ............................................................................ $2,400,000
Interest revenue ................................................................ 31,000
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BRIEF EXERCISE 4-3
Turner Corporation
Income Statement
For the Year Ended December 31, 2007
Net sales ............................................................................. $2,400,000
Cost of goods sold ............................................................ 1,250,000
Gross profit ............................................................ 1,150,000
Selling expenses ................................................................ $280,000
Administrative expenses .................................................. 212,000 492,000
Income from operations .................................................... 658,000
Other revenue and gains
Interest revenue ..................................................... 31,000
Other expenses and losses
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BRIEF EXERCISE 4-4
Income from continuing operations $12,600,000
Discontinued operations
Loss from operation of discontinued
restaurant division (net of tax) $315,000
Loss from disposal of restaurant division
(net of tax) 189,000 504,000
Net income $12,096,000
Earnings per share
Income from continuing operations $1.26
Discontinued operations, net of tax (.05 )*
Net income $1.21
BRIEF EXERCISE 4-5
Income before income tax and extraordinary
item $7,300,000
Income tax 2,190,000
Income before extraordinary item 5,110,000
Extraordinary item—loss from casualty $770,000
Less: Applicable income tax 231,000 539,000
Net income $4,571,000
Earnings per share
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Income before extraordinary item $1.02*
Extraordinary loss, net of tax (.11 )*
Net income $ .91
BRIEF EXERCISE 4-6
2007 2006 2005
Income before income tax $190,000 $145,000 $170,000
Income tax (30%) 57,000 43,500 51,000
Net Income $133,000 $101,500 $119,000
BRIEF EXERCISE 4-7
Kingston would not report any cumulative effect because a change in esti-
mate is not handled retroactively. Kingston would report bad debt expense
of $120,000 in 2007.
BRIEF EXERCISE 4-8
$1,200,000 – $250,000
= $5.00 per share
190,000
BRIEF EXERCISE 4-9
Lincoln Corporation
Retained Earnings Statement
For the Year Ended December 31, 2007
Retained earnings, January 1 ........................................................ $ 675,000
Add: Net income .............................................................................. 2,400,000
3,075,000
Less: Cash dividends ...................................................................... 75,000
Retained earnings, December 31 ................................................... $3,000,000
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BRIEF EXERCISE 4-10
Lincoln Corporation
Retained Earnings Statement
For the Year Ended December 31, 2007
Retained earnings, January 1, as reported ................................... $ 675,000
Correction for overstatement of expenses in
prior period (net of tax) ...................................................... 80,000
Retained earnings, January 1, as adjusted .................................. 755,000
Add: Net income .............................................................................. 2,400,000
3,155,000
Less: Cash dividends ...................................................................... 75,000
Retained earnings, December 31 ................................................... $3,080,000
BRIEF EXERCISE 4-11
(a) Net income (Dividend revenue) $3,000
(b) Net income $3,000
Unrealized holding gain 5,000
Comprehensive income $8,000
(c) Unrealized holding gain
(Other comprehensive income) $5,000
(d) Accumulated other comprehensive income,
January 1, 2007 $ 0
Unrealized holding gain 5,000
Accumulated other comprehensive income,
December 31, 2007 $5,000
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SOLUTIONS TO EXERCISES
EXERCISE 4-1 (18–20 minutes)
Computation of net income
Change in assets: $79,000 + $45,000 + $127,000 – $47,000 = $204,000
Increase
Change in liabilities: $ 82,000 – $51,000 = 31,000 Increase