2 at the beginning of 2012 the corporation purchased

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Microeconomics: Private and Public Choice
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Chapter 4 / Exercise 9
Microeconomics: Private and Public Choice
Gwartney/Stroup/Sobel/Macpherson
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2. At the beginning of 2012, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2012, 2013, and 2014 but failed to deduct the salvage value in computing the depreciation base. 3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax). THOMPSON CORPORATION T RIAL B ALANCE D ECEMBER 31, 2014 Debit Credit Purchase Discounts $ 10,000 Cash $ 189,700 Accounts Receivable 105,000 Rent Revenue 18,000 Retained Earnings 160,000 Salaries and Wages Payable 18,000 Sales Revenue 1,100,000 Notes Receivable 110,000 Accounts Payable 49,000 Accumulated Depreciation—Equipment 28,000 Sales Discounts 14,500 Sales Returns and Allowances 17,500 Notes Payable 70,000 Selling Expenses 232,000 Administrative Expenses 99,000 Common Stock 300,000 Income Tax Expense 53,900 Cash Dividends 45,000 Allowance for Doubtful Accounts 5,000 Supplies 14,000 Freight-In 20,000 Land 70,000 Equipment 140,000 Bonds Payable 100,000 Gain on Sale of Land 30,000 Accumulated Depreciation—Buildings 19,600 Inventory 89,000 Buildings 98,000 Purchases 610,000 Totals $1,907,600 $1,907,600 5 3 7 4 3 5
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Microeconomics: Private and Public Choice
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Chapter 4 / Exercise 9
Microeconomics: Private and Public Choice
Gwartney/Stroup/Sobel/Macpherson
Expert Verified
198 Chapter 4 Income Statement and Related Information 4. When its president died, the corporation realized $150,000 from an insurance policy. The cash sur- render value of this policy had been carried on the books as an investment in the amount of $46,000 (the gain is nontaxable). 5. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. 6. The corporation decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2012 income by $60,000 and decrease 2013 income by $20,000 before taxes. The FIFO method has been used for 2014. The tax rate on these items is 40%. Instructions Prepare an income statement for the year 2014 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares out- standing for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) P4-4 (Multiple- and Single-Step Income, Retained Earnings) The following account balances were in- cluded in the trial balance of Twain Corporation at June 30, 2014. Sales revenue $1,578,500 Depreciation expense (office Sales discounts 31,150 furniture and equipment) $ 7,250 Cost of goods sold 896,770 Property tax expense 7,320 Salaries and wages expense (sales) 56,260 Bad debt expense (selling) 4,850 Sales commissions 97,600 Maintenance and repairs Travel expense (salespersons) 28,930 expense (administration) 9,130 Delivery expense 21,400 Office expense 6,000 Entertainment expense 14,820 Sales returns and allowances 62,300 Telephone and Internet expense (sales) 9,030 Dividends received 38,000 Depreciation expense (sales equipment) 4,980 Interest expense 18,000 Maintenance and repairs expense (sales) 6,200 Income tax expense 102,000 Miscellaneous selling expenses 4,715 Depreciation understatement Office supplies used 3,450 due to error—2011 (net of tax) 17,700 Telephone and Internet expense Dividends declared on (administration) 2,820 preferred stock 9,000 Dividends declared on common stock 37,000 The Retained Earnings account had a balance of $337,000 at July 1, 2013. There are 80,000 shares of common

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