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Finally the statement of stockholders equity will

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Unformatted text preview: t do not originate from profitability. Comprehensive Income (the change to Accumulated Other Comprehensive Income) is reflected at the bottom of the Income Statement, below the calculation of Net Income. Finally, the Statement of Stockholders’ Equity will contain a column showing all the changes to Accumulated Other Comprehensive Income (with the ending balance matching what is shown on the Balance Sheet). EXERCISES E13–1 a. Statement b. Classification c. Explanation 1. IS Other This is an example of a bookkeeping entry without an underlying economic event. Some are voluntary, some are involuntary. 2. 3. 4. N N IS 5. IS N/A N/A Usual and frequent operations. Usual and frequent 6. IS Unusual or infrequent 7. IS Unusual and infrequent 8. 9. 10. S E S E IS N/A N/A Unusual or infrequent 11. IS Usual and frequent 12. IS Usual and frequent Wages are normal, recurring part of Bad debts are a normal, recurring part of operations. Sales of equipment are secondary to normal operations. Expropriation against a company occurs rarely in the U.S. Dividend Revenue is secondary to normal buying and selling activities of most businesses. Cost of goods sold is part of normal daily operations. Rent expense is part of normal operations. E13–2 a. b. 1. 2. 3. 4. 5. 6. 7. 8. 1 4 5 5 4 5 1 1 9. 10. 11. 12. 13. 14. 15. 2 5 5 5 1 5 3 As the transactions move from 1 to 5, they move away from exchanges with owners toward exchanges with third parties involving the company's central, ongoing activities. Stockholders and creditors are considered providers of capital, and this financing provides capital that is necessary for the company to be able to operate. However, the company does not exist to draw capital from the equity and debt investors; instead, it exists to provide goods and/or services to other entities. Providing goods and/or services is considered the company's operations. E13–3 a. (5 ) (1 ) Financing (2 ) Operating (3 ) Operating (4 ) Financing Financing Smedley Company Income Statement For the Year Ended December 31, 2013 Fees earned Expenses Net income b. $ 50,000 24,000 $ 26,000 Comprehensive Income = = = = Change in Equity from Nonowner Sources Revenues – Expenses + Gains – Losses + Cumulative Accounting Adjustments $50,000 – $24,000 + 0 – 0 $26,000 _ * Fees and expenses represent Smedley’s only nonowner changes in equity. c. The two are equal because Smedley’s economic events/activities do not differ from those described in the income statement. E13–4 a. (1 ) (2 ) (3 ) (4 ) b. Net income Maximum Dividend = 20% $182,800 = $36,560 Income before change in accounting method Maximum Dividend = 20% $130,800 = $26,160 Income before extraordinary items Maximum Dividend = 20% $108,800 = $21,760 Net operating income Maximum Dividend = 20% $150,000 = $30,000 The bank requires restrictions on dividend payments to increase the probability that Morton Manufacturing will have sufficient cash to meet its interest and principal payments. More stringent restric...
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