week 2 - EXERCISE 4-6 (3040 minutes) (a) Multiple-Step Form...

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EXERCISE 4-6 (30–40 minutes) (a)Multiple-Step Form WEATHERSPOON SHOE CO. Income Statement For the Year Ended December 31, 2010 Net sales $980,000 Cost of goods sold 516,000 Gross profit 464,000 Operating Expenses Selling expenses Wages and salaries $114,800 Depr. exp. (70% X $65,000) 45,500 Materials and supplies 17,600 $177,900 Administrative expenses
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Wages and salaries 135,900 Other admin. expenses 51,700 Depr. exp. (30% X $65,000) 19,500 207,100 385,000 Income from operations 79,000 Other Revenues and Gains Rental revenue 29,000 108,000 Other Expenses and Losses Interest expense 18,000 Income before income tax 90,000 Income tax 30,600 Net income $ 59,400
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Earnings per share ($59,400 ÷ 20,000) $2.97 (b)Single-Step Form WEATHERSPOON SHOE CO. Income Statement For the Year Ended December 31, 2010 Revenues Net sales $ 980,000 Rental revenue 29,000 Total revenues 1,009,000 Expenses Cost of goods sold $516,000
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Selling expenses 177,900 Administrative expenses 207,100 Interest expense 18,000 Total expenses 919,000 Income before income tax 90,000 Income tax 30,600 Net income $ 59,400 Earnings per share ($59,400 ÷ 20,000) $2.97 Note : An alternative income statement format for the single-step form is to show income tax as part of expenses, and not as a separate item. (c)Single-step:
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1. Simplicity and conciseness. 2. Probably better understood by users. 3. Emphasis on total costs and expenses and net income. 4. Does not imply priority of one revenue or expense over another. Multiple-step: 1. Provides more information through segregation of operating and nonoperating items. 2. Expenses are matched with related revenue. Note to instructor : Students’ answers will vary due to the nature of the question, i.e., it asks for an opinion. However, the discussion supporting the answer should include the above points. EXERCISE 4-8 (30–35 minutes) (a)BROKAW CORP. Income Statement
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For the Year Ended December 31, 2010 Sales Revenue Net sales $1,200,000 Cost of goods sold 780,000 Gross profit 420,000 Operating Expenses Selling expenses $65,000 Administrative expenses 48,000 113,000 Income from operations 307,000 Other Revenues and Gains Dividend revenue 20,000 Interest revenue 7,000 27,000 334,000 Other Expenses and Losses Write-off of inventory due to obsolescence 80,000
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Income before income tax and extraordinary item. .............................. .......................................... .......................................... 254,000
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week 2 - EXERCISE 4-6 (3040 minutes) (a) Multiple-Step Form...

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