acct550 homework week 2

7/22/2019 ACCT550 Homework Week 2

http://slidepdf.com/reader/full/acct550-homework-week-2 1/5

E4-4 (Multiple-Step and Single-Step) Two accountants for the firm of Allen and Wright arearguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2012 information related to Webster Company ($000 omitted).Administrative expense

Officers’ salaries$4,900Depreciation of office furniture and equipment 3,960

Cost of goods sold 63,570Rent revenue 17,230Selling expense

Transportation-out 2,690Sales commissions 7,980Depreciation of sales equipment 6,480

Sales revenue 96,500Income tax expense 7,580Interest expense 1,860

Instructions(a) Prepare an income statement for the year 2012 using the multiple-step form. Common sharesoutstanding for 2012 total 40,550 (000 omitted).(b) Prepare an income statement for the year 2012 using the single-step form.(c) Which one do you prefer? Discuss.

A.

Multiple-Step FormWebster CompanyIncome Statement

For the Year Ended December 31, 2012

Sales Revenue $96,500Cost of goods sold 63,570Gross profit on sales 32,930

Operating ExpensesSelling expenses

Transportation-out $2,690Sales commissions 7,980Depreciation of sales equipment 6,480 $17,150

Administrative expensesOfficers’ salaried $4,900Dep. of office furniture & equipment 3,960 $8,860 26,010

Income from operations $6,920Other Revenues and Gaines

Rent Revenue 17,230Income from operations 24,150Other Expenses and Losses

Interest Expense 1,860Income before income taxes 22,290



Income tax 7,580 Net income $14,710

======

Earnings per capital share ($14,710 / 40,550 shares) $.36

===B.

Single-Step Form

Webster CompanyIncome Statement


RevenuesSales Revenue $96,500Rent revenue 17,230

Total revenues $113,730ExpensesCost of goods sold 63,570Selling expenses 17,150Administrative expenses 8,860Interest expense 1,860Income tax expense 7,580Total expenses $99,020

Net Income $14,710======

Earnings per capital share ($14,710 / 40,550 shares) $.36===

C.I prefer the Single-Step Form of Income Statement because of its simplicity and conciseness,easily understood by users, emphasis on total costs and expenses and net income and it does notimply priority of one revenue or expense over another.

E4-12 (Earnings per Share) At December 31, 2011, Schroeder Corporation had the followingstock outstanding.

8% cumulative preferred stock, $100 par, 107,500 shares $10,750,000Common stock, $5 par, 4,000,000 shares $20,000,000



During 2012, Schroeder did not issue any additional common stock. The following also occurredduring 2012.

Income from continuing operations before taxes $21,650,000

Discontinued operations (loss before taxes) 3,225,000Preferred dividends declared 860,000Common dividends declared 2,200,000Effective tax rate 35%

InstructionsCompute earnings per share data as it should appear in the 2012 income statement of Schroeder Corporation. (Round to two decimal places.)

Schroeder CorporationIncome Statement


Net income:Income before income tax $21,650,000Income tax (35%*$21,650,000) 7,577,500Income from continuing operations 14,072,500

Discontinued operationsLoss before income tax $3,225,000Income tax (35%*3,225,000) 1,128,750 2,096,250

Net income $11,976,250=========

Preferred dividends declared $860,000Weighted average shares outstanding 4,000,000

Earnings per shareIncome from continuing operations ($14,072,500-860,000)/4,000,000 $3.30Discontinued operations, net of tax ($2,096,250 / 4,000,000) (.52) Net income (11,976,250-860,000)/4,000,000 $2.78

====

P4-1 (Multiple-Step Income, Retained Earnings) Presented below is information related toDickinson Company for 2012.Retained earnings balance, January 1, 2012 $980,000Sales revenue 25,000,000Cost of goods sold 16,000,000Interest revenue 70,000Selling and administrative expenses 4,700,000Write-off of goodwill 820,000



Income taxes for 2012 1,244,000Gain on the sale of investments (normal recurring) 110,000Loss due to flood damage-extraordinary item (net of tax) 390,000Loss on the disposition of the wholesale division (net of tax)440,000Loss on operations of the wholesale division (net of tax) 90,000

Dividends declared on common stock 250,000Dividends declared on preferred stock 80,000InstructionsPrepare a multiple-step income statement and a retained earnings statement. Dickinson Companydecided to discontinue its entire wholesale operations and to retain its manufacturing operations.On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2012,there were 500,000 shares of common stock outstanding all year.

Dickinson CompanyIncome Statement


Sales Revenue $25,000,000Cost of goods sold 16,000,000Gross profit 9,000,000Selling and administrative expenses 4,700,000Income from operations 4,300,000Other revenues and gains

Gain on the sale of investments 110,000Interest revenue 70,000 180,000

Other expenses and lossesWrite off of goodwill (820,000)

Income from continuing operations before taxes 3,660,000Income tax (1,244,000)Income from continuing operations 2,416,000Discontinued operations

Loss on operations, net of tax 90,000Loss on disposal, net of tax 440,000 (530,000)

Income before extraordinary item 1,866,000Extraordinary item-loss from flood damage, net of tax (390,000) Net income $1,496,000

==========

Earnings per shareIncome from continuing operations ($2,416,000-$80,000) /500,000 shares $4.67Discontinued operationsLoss on operations, net of tax ($90,000/500,000) ($.18)Loss on disposal, net of tax ($440,000/500,000) ($.88) (1.06)Income before extraordinary item (1,866,000-80,000)/500,000 $3.61Extraordinary loss, net of tax ($390,000/500,000 (.78) Net Income ($1,496,000-80,000)/500,000 $2.83

====



Dickinson CompanyRetained Earnings Statement


Retained earnings, January 1 $980,000Add: Net income 1,496,000

2,476,000Less: DividendsPreferred stocks $80,000Common stocks 250,000 330,000Retained earnings, December 31 $2,146,000

========

acct550 homework week 2

Documents