c Single step 1 Simplicity and conciseness 2 Probably better understood by

C single step 1 simplicity and conciseness 2 probably

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(c) Single-step: 1. Simplicity and conciseness. 2. Probably better understood by users. 3. Emphasis on total costs and expenses and net income.
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4. Does not imply priority of one revenue or expense over another.
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EXERCISE 4-7 (Continued) 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 (15–20 minutes) (a) Net sales $  540,000 Cost of goods sold (210,000) Administrative expenses (100,000) Selling expenses (80,000) Discontinued operations-loss     (40,000 Income before income tax 110,000 Income tax ($110,000 X .30)      33,000 Net income $   77,000 (b) Income from continuing operations before income tax $150,000* Income tax ($150,000 X .30)     45,000 Income from continuing operations 105,000 Discontinued operations, less applicable income tax of $12,000   (28,000 Net income $  77,000 *$110,000 + $40,000 Earnings per share: Income from continuing operations ($105,000  ÷  10,000) $10.50 Loss on discontinued operations, net of tax         (2.80
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Net Income ($77,000  ÷  10,000) $  7.70
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EXERCISE 4-9 (30–35 minutes) (a) IVAN CALDERON CORP. Income Statement For the Year Ended December 31, 2014 Sales Revenue       Net sales ....................................................................... $1,300,000       Cost of goods sold ......................................................     780,000                  Gross profit .......................................................      520,000 Operating Expenses Selling expenses ..................................................... $65,000 Administrative expenses ........................................   48,000     113,000 Income from operations .................................................... 407,000 Other Revenues and Gains Dividend revenue .................................................... 20,000 Interest revenue .......................................................     7,000       27,000 434,000 Other Expenses and Losses Write-off of inventory due to obsolescence .............       80,000 Income before income tax and extraordinary item ............. 354,000 Income tax ................................................................     120,360 Income before extraordinary item .................................... 233,640 Extraordinary item Casualty loss .................................................. 50,000 Less: Applicable income tax   ($50,000   .34) ............................................   17,000       (33,000 ) Net income .......................................................................... $   200,640 Per share of common stock: Income before extraordinary item  ($233,640  ÷  60,000) .............................................. $3.89* Extraordinary item, net of tax .................................   (.55 ) Net income ($200,640  ÷  60,000) .............................. $3.34
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*Rounded
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EXERCISE 4-9 (Continued) (b) IVAN CALDERON CORP. Retained Earnings Statement For the Year Ended December 31, 2014 Retained earnings, Jan. 1, as reported ............................................... $    980,000 Correction for overstatement of net income in prior period  (depreciation error) (net of $18,700 tax) ...................................       (36,300 ) Retained earnings, Jan. 1, as adjusted ...............................................   943,700 Add: Net income ...................................................................................      200,640   1,144,340 Less: Dividends declared ....................................................................        45,000 Retained earnings, Dec. 31 .................................................................. $1,099,340 EXERCISE 4-10 (20–25 minutes) Computation of net income:       2014 net income after tax $33,000,000       2014 net income before tax           [$33,000,000  ÷  (1 – .34)]   50,000,000       Add back major casualty loss   18,000,000             Income from operations 68,000,000
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