P. Bride Company Accounting

EXERCISE 4.5 (30–35 minutes) (a) Multiple-Step Form P. BRIDE COMPANY Income Statement For the Year Ended December 31, 2020 (In thousands, except earnings per share) Sales revenue ................................................... Cost of goods sold ........................................... Gross profit....................................................... Operating Expenses: $96,500 60,570 35,930 Selling expenses Sales commissions .............................. $7,980 Depr. of sales equipment ..................... 6,480 Delivery expense .................................. 2,690 Administrative expenses Officers’ salaries................................... 4,900 Depr. of office furn. and equip. ............ 3,960 Income from operations ................. Other Revenues and Gains: Rent revenue............................................... Other Expenses and Losses: Interest expense ......................................... Income before income tax ............................... Income tax................................................... Net income ........................................................ Earnings per share ($16,220 ÷ 40,550) ............ $17,150 8,860 26,010 9,920 17,230 1,860 25,290 9,070 $16,220 $.40 EXERCISE 4.5 (Continued) (b) Single-Step Form P. BRIDE COMPANY Income Statement For the Year Ended December 31, 2020 (In thousands, except earnings per share) Revenues Net sales............................................................................ Rental revenue .................................................................. $ 96,500 17,230 Total revenues............................................................. 113,730 Expenses Cost of goods sold ........................................................... Selling expenses............................................................... Administrative expenses.................................................. Interest expense ............................................................... Total expenses ............................................................ 60,570 17,150 8,860 1,860 88,440 Income before income tax...................................................... Income tax............................................................................... Net income ........................................................................ 25,290 9,070 16,220 $ Earnings per share ................................................................. $.40 Note: An alternative income statement format for the single-step form is to show income tax a part of expenses, and not as a separate item. (c) Single-step: 1. Simplicity and conciseness. 2. Probably better understood by users. 3. Emphasis on total costs and expenses and net income. 4. Does not imply priority of one revenue or expense over another. EXERCISE 4.5 (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 previous points. LO: 2, Bloom: AP, Difficulty: Simple, Time: 30-35, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication EXERCISE 4.6 (30–35 minutes) ALONZO CORP. Income Statement For the Year Ended December 31, 2020 Sales Revenue Sales revenue ......................................................... $1,380,000 Less: Sales returns and allowances ..................... $150,000 45,000 195,000 Sales discounts ........................................... Net sales.................................................................. 1,185,000 Cost of goods sold ................................................. 621,000 Gross profit on sales.................................................... 564,000 Operating Expenses Selling expenses ................................................. Administrative and general expenses ............... Income from operations............................................... 194,000 97,000 291,000 273,000 EXERCISE 4.6 (Continued) Other Revenues and Gains Interest revenue....................................................... 86,000 359,000 Other Expenses and Losses Loss from earthquake damage............................... 150,000 Interest expense ...................................................... 60,000 210,000 Income before income tax .............................................. 149,000 Income tax ($149,000 X .20) .................................... Net income....................................................................... 29,800 $119,200 Per share of common stock: Net income ($119,200 ÷ 100,000) ............................. $ 1.19* *Rounded LO: 2, 3, Bloom: AP, Difficulty: Moderate, Time: 30-35, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: None EXERCISE 4.7 (30–40 minutes) (a) Multiple-Step Form LATIFA SHOE CO. Income Statement For the Year Ended December 31, 2020 Net sales ....................................................... Cost of goods sold ....................................... Gross profit on sales.................................... $980,000 496,000 484,000 Operating Expenses Selling expenses Salaries and wages expense ........... $114,800 Depreciation exp. (70% X $65,000) .. 45,500 Supplies ............................................ 17,600 $177,900 Administrative expenses Salaries and wages expense ........... 135,900 Other admin. expenses .................... 51,700 Depreciation exp. (30% X $65,000) .. Income from operations............................... 19,500 207,100 Other Revenues and Gains Rent revenue........................................... Other Expenses and Losses Interest expense ..................................... Income before income tax ........................... Income tax............................................... Net income .................................................... Earnings per share ($86,900 ÷ 20,000) ........ 385,000 99,000 29,000 128,000 18,000 110,000 23,100 86,900 $ $4.35* *Rounded 4-EXERCISE 4.7 (Continued) (b) Single-Step Form LATIFA SHOE CO. Income Statement For the Year Ended December 31, 2020 Revenues Net sales ........................................................................ Rent revenue ................................................................. $ 980,000 29,000 Total revenues ......................................................... Expenses Cost of goods sold ........................................................ Selling expenses(**) ........................................................ Administrative expenses(***) .......................................... Interest expense ............................................................ Total expenses ........................................................ 1,009,000 496,000 177,900 207,100 18,000 899,000 Income before income tax .................................................. Income tax ..................................................................... Net income........................................................................... 110,000 23,100 86,900 $ Earnings per share ($86,900 ÷ 20,000) ............................... $4.35(*) *Rounded ** $114,800 + (70% x $65,000) + $17,600 = $177,900 *** $135,900 + $51,700 + (30% x $65,000) = $207,100 Note: An alternative income statement format for the single-step form is to show income tax as part of expenses, and not as a separate item. (c) Single-step: 1. Simplicity and conciseness. 2. Probably better understood by users. EXERCISE 4.7 (Continued) 3. Emphasis on total costs and expenses and net income. 4. Does not imply priority of one revenue or expense over another. 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. LO: 2, 3, Bloom: AP, Difficulty: Moderate, Time: 30-40, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: Communication (a) EDDIE ZAMBRANO CORPORATION Retained Earnings Statement For the Year Ended December 31, 2020 Balance, January 1, as reported............................................. Correction for depreciation error (net of $5,000 tax) ............ Cumulative decrease in income from change in inventory methods (net of $7,000 tax) ......................... Balance, January 1, as adjusted............................................. Add: Net income...................................................................... Less: Dividends declared ....................................................... Balance, December 31 ............................................................ EXERCISE 4.12 (20–25 minutes) *($40,000 + $125,000 + $160,000) – ($50,000 + $50,000) **[$240,000 – (20% X $240,000)] $225,000* (20,000) (28,000) 177,000 192,000** 369,000 100,000 $269,000 (b) Total retained earnings would still be reported as $269,000. A restriction does not affect total retained earnings; it merely labels part of the retained earnings as being unavailable for dividend distribution. Retained earnings would be reported as follows: Retained earnings: Appropriated..................................... Unappropriated................................. Total ................................................ $ 70,000 199,000 $269,000 : AP, Difficulty: Simple, Time: 20-25, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: nication EXERCISE 4.13 (15–20 minutes) Net income: Income from continuing operations before income tax.......................................... $23,650,000 Income tax (17% X $23,650,000) ....................... 4,020,500 Income from continuing operations................. 19,629,500 Discontinued operations Loss before income tax............................... Less: Applicable income tax (17%) ............ $3,225,000 Net income......................................................... 548,250 (2,676,750) $16,952,750 Preferred dividends declared: ................................ $ 1,075,000 Weighted average common shares outstanding...... 4,000,000 Earnings per share Income from continuing operations................. Discontinued operations, net of tax................. Net income......................................................... *($19,629,500 – $1,075,000) ÷ 4,000,000. (Rounded) **$2,676,750 ÷ 4,000,000. (Rounded) ***($16,952,750 – $1,075,000) ÷ 4,000,000. LO: 3, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: None PROBLEM 4.3 $4.64* (.67)** $3.97*** MAHER INC. Income Statement (Partial) For the Year Ended December 31, 2020 Income from continuing operations before income tax.................................................. Income tax...................................................... Income from continuing operations ....................... Discontinued operations Loss from disposal of recreational division ....................................................... Less: Applicable income tax reduction....... Net income................................................................ (1) $115,000 30% $748,500(a) 193,350(b) 555,150 $115,000 34,500 (1) (80,500) $474,650 Per share of common stock: Income from continuing operations ($555,150 ÷ 120,000) Discontinued operations, net of tax ............. Net income ($474,650 ÷ 120,000)................... *Rounded (a) Computation of income from cont. operations before taxes: As previously stated..................................................... Loss on sale of securities ....................................... Gain on proceeds of life insurance policy ($150,000 – $46,000) ................................. Flood Loss Error in computation of depreciation As computed ($54,000 ÷ 6)..................................... $9,000 Corrected ($54,000 – $9,000) ÷ 6 ........................... (7,500) As restated................................................................... 4- PROBLEM 4.3 (Continued) (b)Computation $4.63* (0.67)* $3.96 $790,000 57,000 104,000 90,000 1,500 $748,500 of income tax: Income from continuing operations before taxes.......... Nontaxable income (gain on life insurance) ................... Taxable income................................................................. Tax rate ............................................................................. Income tax......................................................................... $748,500 (104,000) 644,500 .30 X $193,350 Note: No adjustment is needed for the inventory method change, since the new method is reported in 2020 income. The cumulative effect on prior years of retroactive application of the new inventory method will be recorded in retained earnings.