BE4-1 Starr Co. in 2014

Sales 540,000.00 of goods sold 330,000.00 Salaries and wages 120,000.00 Income tax expense 25,000.00 Increase in value of company reputati 15,000.00 Other operating 10,000.00 Unrealized gain on value of patents 20,000.00

Answer to Question

Sales 540,000.00 Cost of goods sold 330,000.00 Gross 210,000.00 Selling expenses. 120,000.00 Administrative expens 10,000.00 130,000.00 Income before income tax 80,000.00 Income tax 25,000.00 . 55,000.00 0.55

BE4-3 relate to Be4-2

Revenues Net sales 2,400,000.00 Interest 31,000 Total revenues 2,431,000

Expenses Cost of goods sold 1,450,000.00 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** $1,036,000.00

BE4-5 Stacy Corporation for 2014

Income before taxes 6,300,000.00 unusual and infrequent pretax loss 770,000.00 tax rate 0.3 Common stock Outstanding 5,000,000.00

Answer to Question

Income before income tax and extraordinary item 6,300,000.00 Income tax expense 1,890,000 Income before extraordinary item 4,410,000 Extraordinary item—los 770,000.00 Less: Applicable incom 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

BE4-8 Hollis Corporation in 2014

Net income 1,000,000.00 Preferred stock 250,000.00 Weighted average common shares oustanding 190,000.00

Answer to Question

Net income 1,000,000.00 Preferred stock dividend 250,000.00 Weighted average common shares ou 190,000.00

Per share 3.95 BE4-10 relate tp BE4-09

Land error discovered 80,000.00

Answer to Question

PORTMAN CORPORATION

Retained Earnings Statement

For the Year Ended December 31, 2010

Retained earnings, January 1, as report 675,000.00 Correction for overstatement of expenses in prior period (net of tax) 80,000 Retained earnings, January 1, as adjust 755,000 Add: Net income 1,400,000 2,155,000 Less: 75,000 Retained earnings, December 31 $2,080,000 BE4-2

Oustanding Stock 100,000.00

Answer to Question

BE4-4 BE4-6

Answer to Question BE4-9

Answer to Question BE4-11

Answer to Question Brisky Corporation

Net Sales 2,400,000.00 Interest Revenue 31,000.00 Cost of Goods Sold 1,450,000.00 Administrative Expenses 212,000.00 Selling Expense 280,000.00 Interest Expense 45,000.00 Tax bracket 0.30 common stock shares authorized 100,000.00 Shares issued oustanding 70,000.00

Answer to Question

Net sales...... 2,400,000.00 Cost of goods sold ...... 1,450,000.00 Gross profit...... 950,000.00 Selling expenses ...... 280,000.00 Administrative expenses... 212,000.00 492,000.00 458,000 458,000.00 Other income and expense Interest revenue...... 31,000.00 Income from operations...... 489,000.00 Interest expense ...... 45,000.00 Income before income tax...... 444,000.00 Income tax ($444,000 X 30%)...... 133,200.00 Net income ...... 310,800.00 Earnings per share ...... 4.44

Finley Corporation During 2014

Income from Continuing Operation 10,600,000.00 Disposed after tax loss 189,000.00 Prior disposal on loss 315,000.00 Common stock oustanding 10,000,000.00 Answer to Question

Income from continuing operations 10,600,000.00 Discontinued operations Loss from operation of discontinued restaurant division (net of tax) 315,000.00 Loss from disposal of restaurant division (net of tax) 189,000 504,000 Net income 10,096,000.00 Earnings per share Income from continuing operations $1.06 Discontinued operations, net of tax -0.05 Net income $1.01

Williamson Company during 2014

Pretax Income under FIFO (2012) 160,000.00 Pretax Income under FIFO (2013) 180,000.00 Weighted average pre-tax income (2012) 145,000.00 Weighted average pre-tax income (2013) 170,000.00 Reported pretax income 180,000.00 Tax Rate 0.3

Answer to Question

2010 2009 2008 Income before income tax 180,000.00 145,000.00 170,000.00 Income tax (30%) 54,000 43,500 51,000 Net Income 126,000.00 101,500.00 119,000.00 Portman Corporation Year earning

Retained Earnings 675,000.00 Net income in 2014 1,400,000.00 Cash dividends declared 75,000.00

Answer to Question

Retained earnings, January 1 675,000.00 Add: Net income 1,400,000 2,075,000 Less: Cash dividends 75,000 Retained earnings, December 31 $2,000,000 Richards Inc Jan. 2014 Common Stock 60,000.00 Purchased Security 20,000.00 Received cash dividends 3,000.00 unrealized gain on securities 4,000.00

Answer to Question

(a) Net income (Dividend revenue) 3,000.00

(b) Net income 3,000.00

Unrealized holding gain 4,000 7,000.00

(c) Unrealized holding gain (Other comprehensive income) 4,000.00

(d) Accumulated other comprehensive income, January 1, 2010 $0 Unrealized holding gain 4,000 Accumulated other comprehensive income, December 31, 2010 $4,000

E4-1

Cash 79,000.00 (net) 45,000.00 127,000.00 Investments (47,000.00)

Answer to Question

Computation of net income Change in : 79,000.00 45,000.00 127,000.00 Change in liabilities: 82,000.00 (51,000.00)

Change in stockholders’ equity:

Change in stockholders’ equity accounted for as follows: Net increase 173,000.00 Increase in common stock 125,000.00 Increase in additional paid-in capita 13,000 Decrease in retained earnings due to dividend declaration -19,000 Net increase accounted for 119,000.00 Increase in retained earnings due to net income 54,000.00 E4-3 Rent Revenue 6,500.00 Interest Expense 12,700.00 Beginning Retained earnings 114,400.00 ending retained earning 134,000.00 dividend revenue 71,000.00 sales return and allowances 12,400.00 allocation to noncontrolling interest 17,000.00

Paczki Products Co.

Answer to Question

(a) Total net revenue: Sales 390,000.00 Less: Sales discounts 7,800.00 Sales returns 12,400 20,200 Net sales 369,800 Dividend revenue 71,000 Rental revenue 6,500 Total net revenue $447,300

(b) Net income: Total net revenue (from a) $447,300 Expenses: Cost of goods sold 184,400.00 Selling expenses 99,400 Administrative expenses 82,500 Interest expense 12,700 Total expenses 379,000 Income before income tax 68,300 Income tax 31,000 Net income $37,300 E4-5 Elwes and Wright related to P. Bride Company

Administrative expense Offi cers’ salaries 4,900.00 of offi ce furniture and 3,960.00 Cost of goods sold 60,570.00 Rent revenue 17,230.00 Selling expense Delivery expense 2,690.00 Sales commissions 7,980.00 Depreciation of sales equipment 6,480.00 Sales revenue 96,500.00 Income tax 9,070.00 Interest expense 1860 Transportation-out -

Answer to Question

(a) Multiple-Step Form WEBSTER COMPANY For the Year Ended December 31, 2010 (In thousands, except earnings per share)

Sales 96,500.00 Cost of goods sold 60,570 Gross profit 35,930

Operating Expenses Selling expenses Sales commissions 7,980.00 Depr. of sales equipment 6,480 Transportation-out 2,690 $17,150 Administrative expenses Officers’ salaries 4,900 Depr. of office furn. and equip. 3,960 8,860 Income from operations 9,920 Other Revenues and Gains Rental revenue 17,230 27,150 Other Expenses and Losses Interest expense 1,860

Income before income tax 25,290 Income tax 9,070 Net income $16,220

Earnings per share ($14,710 ÷ 40,550) $0.40

Latifa Shoe Co.

E4-7 Rent revenue 29,000.00 Interest expense 18,000.00 Market appreciation on land above co 31,000.00 Salaries and wages expense (selling) 114,800.00 Supplies (selling) 17,600.00 Income tax 37,400.00 Salaries and wages expense (administ 135,900.00 Other administrative expenses 51,700.00 Cost of goods sold 496,000.00 Net sales 980,000.00 Depreciation on plant assets (70% sel 65,000.00 Cash dividends declared 16,000.00 Common stock shares 20,000.00

Answer to Question

(a) Multiple-Step Form WEATHERSPOON SHOE CO. Income Statement For the Year Ended December 31, 2010 Net sales Cost of goods sold

Gross profit

Operating Expenses

Selling expenses Wages and salaries 114,800.00 Depr. exp. (70% X $65,000) 45,500

Materials and supplies 17,600 Administrative expenses

Wages and salaries 135,900

Other admin. expenses 51,700

Depr. exp. (30% X $65,000) 19,500

Income from operations

Other Revenues and Gains Rental revenue

Other Expenses and Losses

Interest expense

Income before income tax Income tax Net income

Earnings per share E4-9 Calderon Corp. for the year 2014.

Net sales 1,300,000.00 Write-off of inventory due to obsolescence Cost of goods sold 780,000.00 Depreciation expense omitted by accident in 2013 Selling expenses 65,000.00 Casualty loss (extraordinary item) before taxes Administrative expenses 48,000.00 Cash dividends declared Dividend revenue 20,000.00 Retained earnings at December 31, 2013 Interest revenue 7,000.00 Effective tax rate of 34% on all items Oustanding shares 60,000.00

(a) Calderon Corp. for the year 2014. Income Statement For the Year Ended December 31, 2010

Sales Revenue Net sales 1,300,000.00 Cost of goods sold 780,000 Gross profit 520,000

Operating Expenses Selling expenses 65,000.00 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 tax reduction 17,000 33,000 Net income $200,640 Per share of common stock: Income before extraordinary item ($167,640 ÷ 60,000) 3.89 Extraordinary item, net of tax -3.344 Net income ($134,640 ÷ 60,000) 0.55 (51,000.00) Bonds Payable 82,000.00 Common Stock 125,000.00 Paid-in Capital in excess of par- common stock 13,000.00 Dividend declaration paid 19,000.00

(47,000.00) = 204,000.00 = 31,000.00 173,000.00 increase Sales Discounts 7,800.00 Selling Expenses 99,400.00 Sales Revenue 390,000.00 Income Tax expenses 31,000.00 Cost of Goods Sold 184,400.00 Administrative Expenses 82,500.00

Dividends declared: Ending retained earnings 134,000.00 Beginning retained earnings 114,400 Net increase 19,600 Less: Net income (from (b)) 37,300 Dividends declared $17,700 Common stock share oustanding 40550

(b) Single-Step Form WEBSTER COMPANY Income Statement For the Year Ended December 31, 2010 (In thousands, except earnings per share)

Revenues Sales 96,500.00 Rental revenue 17,230 Total revenues 113,730

Expenses Cost of goods sold 60,570 Selling expenses 17,150 Administrative expenses 8,860 Interest expense 1,860 Total expenses 88,440

Income before income tax 25,290 Income tax 9,070 Net income $16,220

Earnings per share $0.40

Selling 0.7 Admin 0.3 980,000.00 496,000

484,000

177,900.00

207,100

99,000

29,000 128,000

18,000

110,000 37,400 $72,600

$3.63 Write-off of inventory due to obsolescence 80,000.00 Depreciation expense omitted by accident in 2013 55,000.00 Casualty loss (extraordinary item) before taxes 50,000.00 45,000.00 Retained earnings at December 31, 2013 980,000.00 Effective tax rate of 34% on all items 0.34

(B) Calderon Corp. for the year 2014. Retained Earnings Statement For the Year Ended December 31, 2010

Retained earnings, Jan. 1, as reported Correction for overstatement of net income in prior period (depreciation error) (net of $13,600 ta Retained earnings, Jan. 1, as adjusted Add: Net income

Less: Dividends declared Retained earnings, Dec. 31

E4-2 Viel Company at December

Sales revenue Cost of goods sold Selling and administrative expenses Gain on sale of plant assets Unrealized gain on available-for-sale investments Interest expense Loss on discontinued operations Allocation to noncontrolling interest Dividends declared and paid

Answer to Question

Sales revenue.

Cost of goods sold

Gross profit Selling and administrative expenses

Other income and expense Gain on sale of plant assets Income from operations Interest expense Income from continuing operations Loss on discontinued operations. Net income Allocation to non- Net income attributable to controlling shareholders Net income Unrealized gain on available-for-sale financial assets Comprehensive income. Net income Dividends declared and paid Retained earnings December 31, 2010 E4-4 LeRoi Jones Inc

Beginning inventory inventory decrease Sales Discounts Common stock shares Intereste Expense tax rate Cost of goods sold Administrative expense (.2 of COG Gross sales (.08 of COGS) Operating expenses

Answer to Question

Revenues Net sales ($admin expenses/.08)-17000 Expenses Cost of goods sold Selling expenses Administrative expenses Interest expense Total expenses Income before income tax Income tax Net income Earnings per share (d) E4-6 Maria Conchita Alonzo Corp

Interest revenue Cash Sales revenue Accounts receivable Prepaid insurance Sales returns and allowances Allowance for doubtful accounts Sales discounts Land Equipment Buildings Cost of goods sold

Answer to Question

Sales Revenue Sales Less: Sales returns and allowance Sales discounts Net sales revenue Cost of goods sold Gross profit

Operating Expenses Selling expenses Admin. and general expenses Income from operations

Other Revenues and Gains Interest revenue

Other Expenses and Losses Interest expense

Income before tax and extraordinary item Income tax ($199,000 X .34) Income before extraordinary item Extraordinary item—loss from earthqu Less: Applicable tax reduction ($120,0 Net income

Per share of common stock: Income before extraordinary item

(Income before extraordinary item ÷ oustanding shares

Extraordinary item (net of tax) Net income ($52,140 ÷ 100,000)

E4-8

Cash Administrative expenses Selling expenses Net sales Cost of goods sold Cash dividends declared (2014) Cash dividends paid (2014) Discontinued operations (loss before income taxes) Depreciation expense, not recorded in 2013 Retained earnings, December 31, 2013 Tax rate Oustanding shares

Net sales Less: Cost of goods sold Income before income tax Income tax

Net income

(b) Income from continuing operations

before income tax Income tax Income from continuing operations

Discontinued operations, less applicable income tax of $12,000

Net income

*$60,000 + $40,000

Earnings per share: Income from continuing operations ($70,000 ÷ 20,000) Loss on discontinued operations, net Net Income ($42,000 ÷ 20,000) 980,000.00 Correction for overstatement of net income in prior -36,300 943,700 200,640 1,144,340 45,000 $1,099,340

310,000.00 140,000.00 Selling and administrative expenses 50,000.00 30,000.00 Unrealized gain on available-for-sale investments 10,000.00 6,000.00 12,000.00 Allocation to noncontrolling interest 40,000.00 5,000.00

310,000.00 140,000.00

170,000.00 Selling and administrative expenses 50,000 120,000

30,000 $150,000 6,000.00 $144,000.00 (12,000.00) $132,000.00 Allocation to non-controlling interest 40,000.00 Net income attributable to controlling shareholders $92,000.00 $132,000.00 Unrealized gain on available-for-sale financial assets 10,000.00 142,000 132,000 5,000 Retained earnings December 31, 2010 $127,000 LeRoi Jones Inc

92,000.00 0.20 17,000.00 20,000.00 20,000.00 0.30 500,000.00 0.20 0.08 0.8

Net sales ($admin expenses/.08)-17000 $1,233,000

500,000.00 400,000.00 100,000.00 20,000.00 1,020,000 213,000 63,900 $149,100 7.455 Maria Conchita Alonzo Corp

$ 86,000 Accumulated depreciation—equipment$ 40,000 51,000 Accumulated depreciation—buildings 28,000 1,380,000 Notes receivable 155,000 150,000 Selling expenses 194,000 20,000 Accounts payable 170,000 150,000 Bonds payable 100,000 7,000 Administrative and general expenses 97,000 45,000 Accrued liabilities 32,000 100,000 Interest expense 60,000 200,000 Notes payable 100,000 140,000 Loss from earthquake damage 621,000 (extraordinary item) 150,000 Common stock 500,000 Retained earnings 21,000

Answer to Question

$1,380,000 $150,000 45,000 195,000 1,185,000 621,000 564,000

194,000 97,000 291,000 273,000

$ 86,000 359,000 60,000

Income before tax and extraordinary item 299,000 101,660 197,340 150,000 51,000 99,000 $98,340

(Income before extraordinary item ÷ oustanding shares 1.9734

-0.99 $0.98

50,000.00 100,000.00 80,000.00 540,000.00 210,000.00 20,000.00 15,000.00 40,000.00 30,000.00 90,000.00 0.30 10,000.00

540,000.00 Less: 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 33,000

Net income $77,000

Income from continuing operations 150,000.00

Income tax ### Income from continuing operations ###

Discontinued operations, less applicable income ###

Net income ###

*$60,000 + $40,000

Earnings per share: Income from continuing operations ($70,000 ÷ 20,000) $10.50 Loss on discontinued operations, net -7.7 Net Income ($42,000 ÷ 20,000) $2.80

Tax rate 0.34 outstanding shares 100000

P4-1

Retained earnings balance, January 1, 2014 $980,000 Sales revenue 25,000,000 Cost of goods sold 16,000,000 Interest revenue 70,000 Selling and administrative expenses 4,700,000 Write-off of 820,000 Income taxes for 2014 1,244,000 Gain on the sale of investments (normal recurring) 110,000 Loss due to flood damage—extraordinary item (net of tax) 390,000 Loss on the disposition of the wholesale division (net of tax) 440,000 Loss on operations of the wholesale division (net of tax) 90,000 Dividends declared on common stock 250,000 Dividends declared on preferred stock 80,000 Oustanding Shares 500,000

Answer to problem Questions

DICKINSON COMPANY

Income Statement For the Year Ended December 31, 2010

Sales $25,000,000 Cost of goods sold 16,000,000 Gross profit 9,000,000 Selling and administrative expenses 4,700,000 Income from operations 4,300,000 Other revenues and gains Interest revenue $70,000 Gain on the sale of investments 110,000 180,000 Other expenses and losses Write-off of goodwill 820,000 Income from continuing operations before income tax 3,660,000 Income tax 1,244,000 Income from continuing operations 2,416,000 Discontinued operations Loss on operations, net of tax 90,000 Loss on disposal, net of tax 440,000 530,000 Income before extraordinary item 1,886,000 Extraordinary item—loss from flood damage, net of tax 390,000 Net income $1,496,000 Earnings per share:

Income from continuing operations 4.672 Discontinued operations

Loss on operations, net of tax ($0.18) Loss on disposal, net of tax -0.88 ($1.06) Income before extraordinary item 3.612 Extraordinary loss, net of tax -0.78 Net income 2.832

Retained earnings, January 1 $980,000 Add: Net income 1,496,000 2,476,000 Less: Dividends Preferred stock $80,000 Common stock 250,000 330,000 Retained earnings, December 31 $2,146,000