Solutions to IS Practice Problems

Solutions to IS Practice Problems - Solutions to Income...

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Solutions to Income Statement Practice Problems EXERCISE 4-8 (30–35 minutes) (a) BROKAW CORP. Income Statement For the Year Ended December 31, 2010 Sales Revenue Net sales .......................................................... $1,200,000 Cost of goods sold ......................................... Gross profit .......................................... 780,000 420,000 Operating Expenses Selling expenses ........................................ $65,000 Administrative expenses ........................... 48,000 Income from operations ....................................... 113,000 307,000 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 .......................................... Income before income tax and extraordinary item ..................................................................... 80,000 254,000 Income tax .................................................. Income before extraordinary item ....................... 86,360 167,640 Extraordinary item Casualty loss .............................................. 50,000 Less: Applicable tax reduction ................ 17,000 Net income ............................................................ 33,000 $ 134,640 Per share of common stock: Income before extraordinary item ($167,640 ÷ 60,000) ................................. $2.79* Extraordinary item, net of tax .................... (0.55 Net income ($134,640 ÷ 60,000) ................. ) $2.24 *Rounded
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EXERCISE 4-8 (Continued) (b) BROKAW CORP. Retained Earnings Statement For the Year Ended December 31, 2010 Retained earnings, Jan. 1, as reported ............................. $ 980,000 Correction for overstatement of net income in prior period (depreciation error) (net of $13,600 tax) ............. (26,400 Retained earnings, Jan. 1, as adjusted
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