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					Chapter 4
EXERCISE 4-3 (25-35 minutes)

(a) Total net revenue:
          Sales                                   $390,000
          Less: Sales discounts         $ 7,800
                 Sales returns           12,400     20,200
          Net sales                                369,800
          Dividends earned                          71,000
          Rental revenue                             6,500
                Total net revenue                 $447,300

(b) Net income:
          Net revenues (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 taxes                       68,300
          Income taxes                              31,000
             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 4-3 (Continued)

                  ALTERNATE SOLUTION

   Beginning retained earnings               $114,400
   Add net income                              37,300
                                              151,700
   Deduct dividends declared (derive)            ?___
   Ending retained earnings                  $134,000

        Dividends declared must be $17,700
          ($151,700 – $134,000)
EXERCISE 4-6 (30-35 minutes)

                         Voisine Corp.
                      Income Statement
            For the Year Ended December 31, 2002

Sales Revenue
   Sales                                             $1,380,000
   Less: Sales returns and allowances    $150,000
         Sales discounts                   45,000       195,000
   Net sales revenue                                  1,185,000

Cost of goods sold                                       621,000
Gross profit on sales                                    564,000

Operating Expenses
   Selling expenses                       194,000
   Administrative and general expenses     97,000        291,000
Income from operations                                   273,000

Other Revenue and Gains
   Interest revenue                                       86,000
                                                         359,000
Other Expenses and Losses
   Interest expense                                       60,000

Income before taxes and extraordinary item               299,000
   Income taxes                                          101,660
Income before extraordinary item                         197,340
Extraordinary item
   Loss from earthquake damage             150,000
   Less applicable tax reduction            51,000        99,000
Net income                                           $    98,340

Earnings per share:
   Income before extraordinary item                        $1.97
   Extraordinary item                                       (.99)
   Net income                                              $ .98
EXERCISE 4-8 (30-40 minutes)

(a)                        Multiple-Step Form
                          Ying-Wei Corporation
                            Income Statement
                 For the Year Ended December 31, 2002

Sales Revenue
   Sales                                                       $930,000
   Less: Sales returns and allowances                            15,000
   Net sales                                                    915,000

Cost of Goods Sold
   Merchandise inventory, January 1, 2002           $120,000
   Purchases                             $600,000
       Less purchase discounts             10,000
   Net purchases                          590,000
       Add transportation-in               14,000    604,000
   Total merchandise available for sale              724,000
   Less merchandise inventory,
         December 31, 2002                           137,000
       Cost of goods sold                                       587,000
   Gross profit                                                 328,000

Operating Expenses
   Selling expenses
       Sales salaries                     71,000
       Amortization expense—store
          equipment                       18,000
       Store supplies expense              9,000      98,000
   Administrative expenses
       Officers’ salaries                 39,000
       Amortization expense—building      28,500
       Office supplies expense             9,500      77,000    175,000
Income from operations                                          153,000

Other Revenues and Gains
   Dividends revenue                                             20,000
                                                                173,000
EXERCISE 4-8 (Continued)

Other Expenses and Losses
   Interest expense                                      9,000
Income before taxes and extraordinary item             164,000
   Income taxes                                         55,760
Income before extraordinary item                       108,240
Extraordinary item
   Flood damage                              50,000
   Less applicable income tax reduction      17,000     33,000
Net income                                            $ 75,240

Earnings per share:
   Income before extraordinary item                      $5.41
   Extraordinary item                                     (1.65)
   Net income                                            $3.76
EXERCISE 4-8 (Continued)

(b)                   Single-Step Form
                    Ying-Wei Corporation
                      Income Statement
           For the Year Ended December 31, 2002

Revenues
   Net sales                                       $915,000
   Dividends revenue                                 20,000
     Total revenues                                 935,000

Expenses
   Cost of goods sold                               587,000
   Selling expenses                                  98,000
   Administrative expenses                           77,000
   Interest expense                                   9,000
      Total expenses                                771,000

Income before taxes and extraordinary item          164,000
   Income taxes                                      55,760
Income before extraordinary item                    108,240
Extraordinary item
      Flood loss                           $50,000
      Less applicable income tax reduction  17,000   33,000
Net income                                         $ 75,240
Earnings per share:
   Income before extraordinary item                   $5.41
   Extraordinary item                                 (1.65)
   Net income                                         $3.76
EXERCISE 4-8 (Continued)

(c)   Single-step:
      1.   Simplicity and conciseness.
      2.   Probably better understood by user.
      3.   Emphasis on total costs and expenses and net
           income.
      4.   Does not imply priority of one expense over another.

      Multiple-step:
      1.   Provides more information through segregation of
           operating and non-operating items.
      2.   Expenses are matched with related revenue.
EXERCISE 4-12 (20-25 minutes)

(a)                  Zambrano Corporation
                  Retained Earnings Statement
             For the Year Ended December 31, 2002

Balance, January 1, as reported                       $225,000*
Correction for amortization error
  (net of $10,000 tax)                                    (15,000)
Retroactive adjustment for change in inventory
   method (net of $14,000 tax)                          (21,000)
Balance, January 1, as adjusted                        189,000
Add net income                                         144,000**
                                                       333,000
Deduct dividends declared                              100,000
Balance, December 31                                  $233,000

 *($40,000 + $125,000 + $160,000) – ($50,000 + $50,000)
**[$240,000 – (40% X $240,000)]


(b) Total retained earnings would still be reported as $233,000.
    An appropriation 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                                     $ 70,000
         Unappropriated                                    163,000
           Total                                          $233,000
                         *PROBLEM 4-9

(a)   The Rocketeer Division’s assets should be identified
      separately on Campbell Corporation’s balance sheet as of
      May 31, 2001 and carried at their net realizable value of $39
      million, i.e., the amount of cash sale. This identification can
      be made in the body of the statement by showing the
      assets of the Rocketeer Division as a separate listing or by
      disclosure in a note to the financial statement.

(b)   The operating loss and the loss upon disposal for a
      discontinued segment must be reported as a separate
      component after income from continuing operations and
      before extraordinary items. The operating loss up to the
      measurement date is presented as a loss from
      discontinued operations. The operating loss from the
      measurement date to the disposal date is part of the
      disposal loss and is combined with the loss on disposal
      determined as of November 1, 2000. Both the operating
      loss and disposal loss from a discontinued segment are
      presented net of tax. Separate earnings per share figures
      would also be required.
*PROBLEM 4-9 (Continued)
All figures in thousands, except earnings per share:
Income from continuing operations (Note–):                             $XXX

 Loss from operations of the Rocketeer
   Division less applicable income taxes:
     Loss to measurement date                           $ (4,100)
     Less applicable income taxes                          1,230    $( 2,870)
 Loss on disposal of the Rocketeer
   Division including provision of $6,650 for
   operating losses during phase-out period (less
   applicable income taxes):
     Loss on sale measured as of 11/1/00                (17,000)
     Operating loss 11/1/00 – 5/31/01        $(5,900)
     Estimated operating losses
        6/1/01 – 6/30/01                        (750)
     Total operating losses                              (6,650)
     Total losses                                       (23,650)
     Less applicable income taxes                         7,095      (16,555)
Total loss arising from discontinued operations                     $(19,425)

Net income                                                             $XXX

      (Note to instructor: We have presented the calculations in this format
      in order for the student to better understand how the loss on
      disposal was calculated. Other formats are acceptable.)

(c)   Information which should be disclosed in the notes to the
      financial statements regarding discontinued operations
      includes identification of the discontinued segment,
      expected date of disposal, expected manner of disposal, a
      description of the remaining assets and liabilities of the
      segment at the balance sheet date, and the income or loss
      from operations and any proceeds from disposal from the
      segment during the period from the measurement date to
      the balance sheet date.

				
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