Chapter 4

Topics: Revenue, Income statement, Income Pages: 10 (392 words) Published: February 20, 2014

Ch. 4 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

STARR CO.
Income Statement
For the Year 2010
Revenues

Sales

$540,000

Expenses

Cost of goods sold

$330,000
Wage expense

120,000
Other operating expenses

10,000
Income tax expense

25,000
Total expenses

485,000

Net income

$55,000

Earnings per share

$0.55*

*$55,000 ÷ 100,000 shares.

Note: The increase in value of the company reputation and the unrealized gain on the value of patents are not reported.

BRIEF EXERCISE 4-2

BRISKY CORPORATION
Income Statement
For the Year Ended December 31, 2010
Revenues

Net sales

$2,400,000
Interest revenue

31,000
Total revenues

2,431,000

Expenses

Cost of goods sold

$1,450,000
Selling expenses

280,000
Administrative expenses

212,000
Interest expense

45,000
Income tax expense*

133,200
Total expenses

2,120,200

Net income

$ 310,800

Earnings per share**

$4.44

*($2,431,000 – $1,450,000 – $280,000 – $212,000 – $45,000) X 30% = $133,200.

**$310,800 ÷ 70,000 shares.
BRIEF EXERCISE 4-3

BRISKY CORPORATION
Income Statement
For the Year Ended December 31, 2010
Net sales

$2,400,000
Cost of goods sold

1,450,000
Gross profit

950,000
Selling expenses
$280,000

Administrative expenses
212,000
492,000
Income from operations

458,000
Other revenue and gains

Interest revenue
31,000

Other expenses and losses

Interest expense
45,000
14,000
Income before income tax

444,000
Income tax expense

133,200
Net income

$ 310,800

Earnings per share

$4.44*

*$310,800 ÷ 70,000 shares.

BRIEF EXERCISE 4-4

Income from continuing operations

$10,600,000
Discontinued operations

Loss from operation of discontinued
restaurant division (net of tax)

$315,000

Loss from disposal of restaurant division
(net of tax)

189,000

504,000
Net income

$10,096,000
Earnings per share

Income from continuing operations

$1.06
Discontinued operations, net of tax

(0.05)*
Net income

$1.01
*Rounded

BRIEF EXERCISE 4-5

Income before income tax and extraordinary
item

$6,300,000
Income tax expense

1,890,000
Income before extraordinary item

4,410,000
Extraordinary item—loss from casualty
$770,000

Less: Applicable income tax
231,000
539,000
Net income

$3,871,000
Earnings per share

Income before extraordinary item

$0.88*
Extraordinary loss, net of tax

 (0.11)*
Net income

$0.77
*Rounded
BRIEF EXERCISE 4-6

    2010  
    2009  
    2008  
Income before income tax
$180,000
$145,000
$170,000
Income tax (30%)
54,000
43,500
51,000
Net Income
$126,000
$101,500
$119,000

BRIEF EXERCISE 4-7

Vandross would not report any cumulative effect because a change in estimate is not handled retrospectively. Vandross would report bad debt expense of $120,000 in 2010.

BRIEF EXERCISE 4-8

$1,000,000 – $250,000
=
$3.95 per share
190,000

BRIEF EXERCISE 4-9

PORTMAN CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2010
Retained earnings, January 1

$ 675,000
Add:Net income

1,400,000

2,075,000
Less: Cash dividends

75,000
Retained earnings, December 31

$2,000,000

BRIEF EXERCISE 4-10

PORTMAN CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2010
Retained earnings, January 1, as reported

$ 675,000
Correction for overstatement of expenses in
prior period (net of tax)

80,000
Retained earnings, January 1, as adjusted

755,000
Add:Net income

1,400,000

2,155,000
Less: Cash dividends

75,000
Retained earnings, December 31

$2,080,000...
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