Chapter 4 Intermediate Accounting: Brief Exercises

BE4-10 Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2014. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2011.

BRIEF EXERCISE 4-10 PORTMAN CORPORATION Retained Earnings Statement For the Year Ended December 31, 2014 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

BE4-11 On January 1, 2014, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2014, it purchased for cash $20,000 of equity securities that it classified as available-for-sale. It received cash dividends of $3,000 during the year on these securities. In addition, it has an unrealized holding gain on these securities of $4,000 net of tax. Determine the following amounts for 2014: (a) net income, (b) comprehensive income, (c) other comprehensive income, and (d) accumulated other comprehensive income (end of 2014).

BRIEF EXERCISE 4-11 (a) Net income (Dividend revenue) $3,000 (b) Net income $3,000 Unrealized holding gain (net of tax) 4,000 Comprehensive income $7,000 (c) Unrealized holding gain (net of tax) (Other comprehensive income) $4,000 (d) Accumulated other comprehensive income, January 1, 2014 $ 0 Unrealized holding gain (net of tax) 4,000 Accumulated other comprehensive income, December 31, 2014 $4,000

BE4-2 Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of goods sold $1,450,000; administrative expenses $212,000; selling expenses $280,000; and interest expense $45,000. Brisky's tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2014. Prepare a single-step income statement for the year ended December 31, 2014.

BRIEF EXERCISE 4-2 BRISKY CORPORATION Income Statement For the Year Ended December 31, 2014 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.

BE4-3 Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation.

BRIEF EXERCISE 4-3 BRISKY CORPORATION Income Statement For the Year Ended December 31, 2014 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.

BE4-4 Finley Corporation had income from continuing operations of $10,600,000 in 2014. During 2014, it disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2014. Finley had 10,000,000 shares of common stock outstanding during 2014. Prepare a partial income statement for Finley beginning with income from continuing operations.

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

BE4-5 Stacy Corporation had income before income taxes for 2014 of $6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation's tax rate is 30%. Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation had 5,000,000 shares of common stock outstanding during 2014.

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 2014 2013 2012 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

BE4-6 During 2014, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2013 and 2012 (Williamson's first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been $145,000 in 2013 and $170,000 in 2012. In 2014, Williamson Company reported pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson Company, beginning with "Income before income tax," as presented on the 2014 income statement. (The tax rate in all years is 30%.)

BRIEF EXERCISE 4-6 ....................................... 2014 2013 2012 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

BE4-7 Vandross Company has recorded bad debt expense in the past at a rate of 1½% of net sales. In 2014, Vandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $380,000 instead of $285,000. In 2014, bad debt expense will be $120,000 instead of $90,000. If Vandross's tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?

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 2014.

BE4-8 In 2014, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2014, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis's 2014 earnings per share.

BRIEF EXERCISE 4-8 ($1,000,000 - $250,000)/190,000 = $3.95 per share

BE4-9 Portman Corporation has retained earnings of $675,000 at January 1, 2014. Net income during 2014 was $1,400,000, and cash dividends declared and paid during 2014 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2014.

BRIEF EXERCISE 4-9 PORTMAN CORPORATION Retained Earnings Statement For the Year Ended December 31, 2014 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

BE4-1 Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Cost of goods sold $330,000 Salaries and wages expense 120,000 Income tax expense 25,000 Increase in value of company reputation 15,000 Other operating expenses 10,000 Unrealized gain on value of patents 20,000 Prepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.

STARR CO. Income Statement For the Year 2014 Revenues Sales revenue.............................................$540,000 Expenses Cost of goods sold......................$330,000 Salaries and wages expense........120,000 Other operating expenses..............10,000 Income tax expense.........................25,000 Total expenses.....................................485,000 Net income........................................................$ 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.