ch4 - Q3.Some situations in which changes in value are not recorded in income are(a Unrealized gains or losses on available-for-sale investments(b

ch4 - Q3.Some situations in which changes in value are not...

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Q3. 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. Q10. 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 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 Income before income tax 68,300 Income tax 31,000
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Net income $ 37,300 (c) Dividends declared: Ending retained earnings $134,000 Beginning retained earnings 114,400 Net increase 19,600 Less: Net income 37,300 Dividends declared $ 17,700 EXERCISE 4-13 Net income: Income from continuing operations before income tax ................................................................. $23,650,000 Income tax (35% X $23,650,000) .............................................. 8,277,500 Income from continuing operations ........................................ 15,372,500 Discontinued operations Loss before income tax ...................................................... $3,225,000 Less: Applicable income tax (35%) ................................... 1,128,750 (2,096,250) Net income ................................................................................. $13,276,250 Preferred dividends declared: ....................................................... $ 1,075,000 Weighted average common shares outstanding ................................ 4,000,000
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