CHAPTER 4 SOLUTIONS TO B EXERCISES E41B (18–20 minutes) Computation of net income Change in assets: $252,800 + $144,000 + $406,400 – $150,400 = $652,800 Increase Change in liabilities: $ 262,400 – $163,200 = 99,200 Increase Change in stockholders’ equity: $553,600 Increase Change in stockholders’ equity accounted for as follows: Net increase Increase in common stock $400,000 Increase in additional paidin capital 41,600 Decrease in retained earnings due to dividend declaration (60,800) Net increase accounted for Increase in retained earnings due to net income $553,600 380,800 $172,800 E42B (25–35 minutes) Sales revenue Less: Cost of goods sold $363,000 Selling and administrative expenses 110,500 (a) Income form operations Interest expense (31,500) Loss on sale of investments (5,000) Gain on discontinued operations 18,000 (b) Net income Allocation to noncontrolling interest (c) Net income attributable to Copa Corporation controlling shareholders (d) Net income less Dividends declared and paid (45,000 10,000) $536,000 473,500 63,500 (18,500) 45,000 16,000 29,000 35,000 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 41 42 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E43B (25–35 minutes) (a) Total net revenue: Sales Less: Sales discounts Sales returns Net sales Dividend revenue Rental revenue Total net revenue (b) Net income: Total net revenue (from a) Expenses: Cost of goods sold Selling expenses Administrative expenses Interest expense Total expenses Income before taxes Income taxes Net income $ 6,240 9,920 $312,000 16,160 295,840 56,800 5,200 $357,840 $357,840 147,520 79,520 66,000 10,160 303,200 54,640 24,800 $ 29,840 (c) Dividends declared: Ending retained earnings Beginning retained earnings Net increase Less: Net income Dividends declared $107,200 91,520 15,680 (29,840) $ 14,160 (d) Net income (from b above) Allocation to noncontrolling interest Income attributable to controlling shareholders $ 29,840 11,000 $ 18,840 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 43 E43B (Continued) ALTERNATE SOLUTION for part (c) Beginning retained earnings Add: Net income Deduct: Dividends declared Ending retained earnings $ 91,520 29,840 121,360 ? $107,200 Dividends declared must be $14,160 ($121,360 – $107,200) 44 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E44B (20–25 minutes) LEON PAUL INC Income Statement For Year Ended December 31, 2014 Sales Less: Sales discounts Net sales Expenses Cost of goods sold Selling expenses Administrative expenses Interest expense Total expenses Income before taxes Income taxes Net income (per share $14.91) $2,500,000 34,000 2,466,000 1,000,000 800,000 200,000 40,000 2,040,000 426,000 127,800 $ 298,200 Determination of amounts: Administrative expenses = 20% of cost of good sold = 20% of $1,000,000 = $200,000 Gross sales X 8% Gross sales = administrative expenses = $200,000 = $2,500,000 Selling expenses = 4 times administrative expenses (operating expenses consist of selling and administrative expenses; since selling expenses are 4/5 of operating expenses, selling expenses are 4 times administrative expenses.) = 4 X $200,000 = $800,000 Per share $14.91 ($298,200 ÷ 20,000) Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 45 E45B (30–35 minutes) (a) MultipleStep Form SAGHIR COMPANY Income Statement For the Year Ended December 31, 2014 (In thousands, except earnings per share) Sales Cost of goods sold Gross profit Operating Expenses Selling expenses Sales commissions $11,172 Depr. of sales equipment 9,072 Transportationout 3,766 Administrative expenses Officers’ salaries 6,860 Depr. of office furn. and equip 5,544 Income from operations Other Revenues and Gains Rental revenue Other Expenses and Losses Interest expense $135,100 84,798 50,302 $24,010 12,404 36,414 13,888 24,122 38,010 2,604 Income before taxes Income taxes Net income 35,406 12,698 $ 22,708 Earnings per share ($22,708 ÷ 40,550) $0.56 46 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E45B (Continued) (b) SingleStep Form SAGHIR COMPANY Income Statement For the Year Ended December 31, 2014 (In thousands, except earnings per share) Revenues Net sales Rental revenue Total revenues $135,100 24,122 159,222 Expenses Cost of goods sold Selling expenses Administrative expenses Interest expense Total expenses 84,798 24,010 12,404 2,604 123,816 Income before taxes Income taxes Net income 35,406 12,698 $ 22,708 Earnings per share $0.56 (c) Singlestep: Simplicity and conciseness Probably better understood by user Emphasis on total costs and expenses and net income Does not imply priority of one expense over another Multiplestep: Provides more information through segregation of operating and nonoperating items Expenses are matched with related revenue Note: 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 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 47 E46B (30–35 minutes) SCHIMANK CORP Income Statement For the Year Ended December 31, 2014 Sales Revenue Sales Less: Sales returns and allowances $210,000 Sales discounts 63,000 Net sales revenue Cost of goods sold Gross profit Operating Expenses Selling expenses 271,600 Admin. and general expenses 135,800 Income from operations Other Revenues and Gains Interest revenue Other Expenses and Losses Interest expense Income before taxes and extraordinary item Income taxes ($418,600 X .34) Income before extraordinary item Extraordinary item Loss from earthquake damage 210,000 Less applicable tax reduction ($210,000 X .34) 71,400 Net income Per share of common stock: Income before extraordinary item ($276,276 ÷ 100,000) Extraordinary item (net of tax) Net income ($137,676 ÷ 100,000) $1,932,000 273,000 1,659,000 869,400 789,600 407,400 382,200 120,400 502,600 84,000 418,600 142,324 276,276 138,600 $ 137,676 $2.76 (1.39) $1.37 48 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E47B (30–40 minutes) (a) MultipleStep Form TABEL SHOE CO Income Statement For the Year Ended December 31, 2014 Net sales Cost of goods sold Gross profit $2,940,000 1,488,000 1,452,000 Operating Expenses Selling expenses Wages and salaries $344,400 Materials and supplies 52,800 Depr. exp. (70% X $19,000) 136,500 $533,700 Administrative expenses Wages and salaries 407,700 Depr. exp. (30% X $19,000) 58,500 Other admin. expenses 155,100 621,300 Income from operations 1,155,000 297,000 Other Revenues and Gains Rental revenue Other Expenses and Losses Interest expense 87,000 384,000 54,000 Income before income tax Income tax Net income 330,000 112,200 $ 217,800 Earnings per share ($217,800 ÷ 20,000) $10.89 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 49 E47B (Continued) (b) SingleStep Form TABEL SHOE CO Income Statement For the Year Ended December 31, 2014 (c) Revenues Net sales Rental revenue Total revenues $2,940,000 87,000 3,027,000 Expenses Cost of goods sold Selling expenses Administrative expenses Interest expense Total expenses 1,488,000 533,700 621,300 54,000 2,697,000 Income before taxes Income taxes Net income 330,000 112,200 $ 217,800 Earnings per share ($217,800 ÷ 20,000) $10.89 Singlestep: Simplicity and conciseness Probably better understood by user Emphasis on total costs and expenses and net income Does not imply priority of one expense over another Multiplestep: Provides more information through segregation of operating and nonoperating items Expenses are matched with related revenue Note: 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 410 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E48B (15–20 minutes) (a) Net sales Less: Cost of goods sold Administrative expenses Selling expenses Discontinued operations—loss Income before income taxes Income tax ($275,000 X .30) Net income $1,350,000 (525,000) (250,000) (200,000) (100,000) 275,000 82,500 $ 192,500 (b) Income from continuing operations before income tax Income tax ($375,000 X .30) Income from continuing operations Discontinued operations, less applicable income tax of $30,000 Net income $375,000* 112,500 262,500 (70,000) $192,500 *$275,000 + $100,000 Earnings per share: Income from continuing operations ($262,500 ÷ 10,000) Loss on discontinued operations Net income ($192,500 ÷ 10,000) $26.25 (7.00) $19.25 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 411 E49B (30–35 minutes) (a) TRIEU CORP Income Statement For the Year Ended December 31, 2014 Sales Revenue Net sales Cost of goods sold Gross profit $2,600,000 1,560,000 1,040,000 Operating Expenses Selling expenses $130,000 Administrative expenses 96,000 Income from operations 226,000 814,000 Other Revenues and Gains Dividend revenue 40,000 Interest revenue 14,000 54,000 868,000 Other Expenses and Losses Writeoff of inventory due to obsolescence 160,000 Income before taxes and extraordinary item 708,000 Income taxes 240,720 Income before extraordinary item 467,280 Extraordinary item Casualty loss 100,000 Less: Applicable tax reduction 34,000 66,000 Net income $ 401,280 Per share of common stock: Income before extraordinary item ($467,280 ÷ 60,000) Extraordinary item (net of tax) Net income ($401,280 ÷ 60,000) $7.79 (1.10) $6.69 412 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E49B (Continued) (b) TRIEU CORP Retained Earnings Statement For the Year Ended December 31, 2014 Balance, Jan. 1, as reported $1,960,000 Correction for overstatement of net income in prior period (depreciation error) (net of $37,400 tax) (72,600) Balance, Jan. 1, as adjusted 1,887,400 Add: Net income 401,280 2,288,680 Less: Dividends declared 90,000 Balance, Dec. 31 $2,198,680 E410B (20–25 minutes) Computation of net income: 2014 net income after tax $ 6,600,000 2014 net income before tax [$6,600,000 ÷ (1 – .34)] 10,000,000 Add back: Major casualty loss 3,600,000 Income from operations 13,600,000 Income taxes (34% X $13,600,000) 4,624,000 Income before extraordinary item 8,976,000 Extraordinary item: Casualty loss $3,600,000 Less: Applicable income tax reduction 1,224,000 2,376,000 Net income $ 6,600,000 Net income Less: Provision for preferred dividends (8% of $900,000) Income available for common Common shares Earnings per share $ 6,600,000 72,000 6,528,000 ÷ 10,000,000 $0.65 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 413 E410B (Continued) Income statement presentation Per share of common stock: Income before extraordinary item Extraordinary item (net of tax) Net income a $8,976,000 – $72,000 = $0.89 10,000,000 b $0.89a (0.24)b $0.65 $2,376,000 = $0.24 10,000,000 E411B (20–25 minutes) Vu CORPORATION Income Statement For the Year Ended December 31, 2014 Net sales Cost of goods sold Gross profit Selling expenses Administrative expenses Income from operations Other revenue Other expense Income before taxes Income taxes ($217,000 X .34) Income before extraordinary item Extraordinary loss, net of $11,900 taxes Net income $318,000 245,500 $2,081,000 1,332,500 748,500 563,500 185,000 120,000 (88,000) 32,000 217,000 73,780 143,220 23,100 $ 120,120 Earnings per share ($450,000 ÷ $10 par value = 45,000 shares) Income before extraordinary item ($143,220 ÷ 45,000) Extraordinary item Net income $3.18 (0.51) $2.67 414 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E411B (Continued) Supporting computations: Net sales: $2,137,500 – $17,000 – $39,500 = $2,081,000 Cost of goods sold: $267,500 + ($1,393,000 + $36,000 – $13,500 – $7,500) – $343,000 = $1,332,500 Selling expenses: $142,000 + $41,500 + $34,500 + $27,000 + $46,500 + $18,000 + $8,500 = $318,000 Administrative expenses: $173,000 + $16,500 + $12,000 + $24,000 + $16,000 + $4,000 = $245,500 E412B (20–25 minutes) (a) JASON WOO CORPORATION Retained Earnings Statement For the Year Ended December 31, 2014 Balance, January 1, as reported Cumulative effect of change in inventory methods (net of $56,000 tax) Correction for depreciation error (net of $40,000 tax) Balance, January 1, as adjusted Add: Net income Deduct: Dividends declared Balance, December 31 $ 900,000* (84,000) (60,000) 756,000 576,000** 1,332,000 400,000 $ 932,000 *($160,000 + $500,000 + $640,000) – ($200,000 + $200,000) **[$960,000 – (40% X $960,000)] Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 415 E412B (Continued) (b) Total retained earnings would still be reported as $932,000. 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 $280,000 652,000 $932,000 E413B (15–20 minutes) Net income: Income from continuing operations before income tax Income tax (40% X $161,500,000) Income from continuing operations Discontinued operations Gain before income tax Less: Applicable income tax (40%) Net income $61,500,000 24,600,000 36,900,000 $6,500,000 2,600,000 Preferred dividends declared: Weighted average common shares outstanding Earnings per share Income from continuing operations Discontinued operations, net of tax Net income 3,900,000 $40,800,000 $ 2,020,000 4,000,000 $8.72* 0.98** $9.70*** *($36,900,000 – $2,020,000) ÷ 4,000,000. **$3,900,000 ÷ 4,000,000 (Rounded) ***($40,800,000$2,020,000)ữ4,000,000(Rounded) 4ư16 Copyrightâ2013JohnWiley&Sons,Inc.Kieso,IntermediateAccounting,15/e,ExerciseBSolutions(ForInstructorUseOnly) E4ư14B(1520minutes) (a) Depreciationexpensefor2014 [($1,350,000$90,000)($450,000 +$300,000+$200,000)] = $103,333 3 years (b) None—Changes in depreciation method are accounted for prospectively E415B (15–20 minutes) (a) ARI CORPORATION Income Statement and Statement of Comprehensive Income For the Year Ended December 31, 2014 Sales Cost of goods sold Gross profit Selling and administrative expenses Net income $6,000,000 3,750,000 2,250,000 1,600,000 $ 650,000 Net income Unrealized holding gain Comprehensive income $650,000 90,000 $740,000 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 417 E415B (Continued) (b) ARI CORPORATION Income Statement For the Year Ended December 31, 2014 Sales Cost of goods sold Gross profit Selling and administrative expenses Net income $6,000,000 3,750,000 2,250,000 1,600,000 $ 650,000 ARI CORPORATION Statement of Comprehensive Income For the Year Ended December 31, 2014 Net income Unrealized holding gain Comprehensive income $650,000 90,000 $740,000 E416B (15–20 minutes) CALVO CO Statement of Stockholders’ Equity For the Year Ended December 31, 2014 Total Beginning balance Comprehensive income Net income* Other comprehensive income Unrealized holding loss Comprehensive income Dividends Compr e hensive Income $260,00 $ 45,000 60,000 $60,000 (30,000) (30,000) $30,000 (5,000 Retaine d Earning s Accumulated Other Comprehensiv e Income Common Stock $40,000 $175,000 60,000 (30,000) (5,000 418 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) Ending balance ) $285,00 ) $100,00 $10,000 $175,000 *($350,000 – $250,000 – $40,000) Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 419 E417B (30–35 minutes) (a) CANTU INC Income Statement For the Year Ended December 31, 2014 Revenues Sales Rent revenue Total revenues $2,660,000 56,000 2,716,000 Expenses Cost of goods sold Selling expenses Administrative expenses Total expenses 1,190,000 420,000 336,000 1,946,000 Income from continuing operations before 770,000 Income taxes Income taxes 261,800 Income from continuing operations 508,200 Discontinued operations Loss on discontinued operations $105,000 Less: Applicable income tax reduction 35,700 69,300 Income before extraordinary items 438,900 Extraordinary items: Extraordinary gain 133,000 Less: Applicable income tax 45,220 87,780 526,680 Extraordinary loss 84,000 Less: Applicable income tax reduction 28,560 55,440 Net income $ 471,240 Per share of common stock: Income from continuing operations ($508,200 ÷ 100,000) Loss on discontinued operations, net of tax Income before extraordinary items ($438,9000 ÷ 100,000) Extraordinary gain, net of tax Extraordinary loss, net of tax Net income ($471,240 ÷ 100,000) $5.08 (0.69) 4.39 0.88 (0.56) $4.71 420 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E417B (Continued) (b) CANTU INC Statement of Comprehensive Income For the Year Ended December 31, 2014 Net income Other comprehensive income Unrealized holding gain Comprehensive income (c) $471,240 21,000 $492,240 CANTU INC Retained Earnings Statement For the Year Ended December 31, 2014 Retained earnings, January 1, 2014 2014 Net income Dividends declared Retained earnings, December 31, 2014 $ 840,000 471,240 $1,311,240 (210,000) $1,101,240 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 421 ... Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 43 E43B (Continued) ALTERNATE SOLUTION for part (c) Beginning retained earnings... 42 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E43B (25–35 minutes) (a) Total net revenue:... 44 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E44B (20–25 minutes) LEON PAUL INC Income Statement