BE 4-1

STARR CO.
Single-Step Income Statement

Sales Revenue
Cost of goods sold
Salary and wage expense
Income tax expense
Increase in value of company reputation
Other operating expenses
Unrealized gain on value of patents

540,000
330,000
120,000
25,000
15,000
10,000
20,000

Shares authorized, issued and outstanding

100,000

INSTRUCTIONS:
Prepare a single-step income statement for 2017.
STARR CO.
INCOME STATEMENT
FOR THE YEAR ENDED 12-31-2017
Revenues
Sales revenue

540,000

Expenses
Cost of Goods Sold
Salary & Wage Expense
Other Operating Expenses
Income Tax Expense

330,000
120,000
10,000
25,000

Total Expenses

485,000

Net Income

55,000

Earnings Per Share

0.55

BE 4-2

BRISKY CORP.
Single-Step Income Statement

Net Sales
Interest Revenue
COGS
Administrative Expenses
Selling Expenses
Interest Expense
Tax rate
Shares authorized
Shares issued and outstanding

2,400,000
31,000
1,450,000
212,000
280,000
45,000
30%
100,000
70,000

INSTRUCTIONS:
Prepare a single-step income statement for 2017.
Brisky Corp.
Income Statement
For the Year Ended December 31, 2017
Revenues
Net Sales
Interest Revenue
Total Revenues
Expenses
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense

1,450,000
212,000
280,000
45,000

Incom tax expense

133,200

Total Expenses
Net Income
Earnings per share
Calculate Income tax expense:
Revenue
Expenses

Income before tax

2,431,000
(1,450,000)
(212,000)
(280,000)
(45,000)
444,000

Tax rate
Income tax expense

BE 4-3
Net Sales
Interest Revenue
COGS
Administrative Expenses
Selling Expenses
Interest Expense
Tax rate

0.30
133,200

BRISKY CORP.
Condensed Multi-Step Income Stateme
2,400,000
31,000
1,450,000
212,000
280,000
45,000
30%

Shares authorized
Shares issued and outstanding

100,000
70,000

INSTRUCTIONS: Prepare a Multi-Step condensed income statement.

Brisky Corp.
Income Statement
For the Year Ended December 31, 2017
Net sales

Less: Cost of goods sold

Gross Profit
Selling Expenses
Administrative Expenses
Income from operations
Other Revenues and Gains
Interest revenue
Other Expenses and Losses
Interest expense
Income before tax

1,450,000
950,000
$

280,000
212,000

492,000
458,000

31,000
45,000

(14,000)
444,000

Income tax expense

Net Income
Earnings per share

2,400,000

133,200
$

310,800

4.44

BRIEF EXERCISE 4-4

FINLEY CORPORATION 2017
Income from continuing operations

10,600,000

Disposed of restaurant division at an after tax loss

189,000

Operating loss of restaurant division, net of tax

325,000

Common stock outstanding during the year

10,000,000

INSTRUCTIONS:
PREPARE PARTIAL INCOME STATEMENT
FINLEY CORPORATION
Income Statement (partial)
For the Year Ended December 31, 2017
Income from continuing operations
Discontinued Operations
Loss from operations of discontinued
restaurant division, net of tax

10,600,000

325,000

Loss from disposal of restaurant

division, net of tax

189,000

Loss from discontinued operations

(514,000)

Net Income

$10,086,000

EARNINGS PER SHARE

Income from continuing operations
Discontinued operations, net of tax
Net Income

CALCULATION OF EPS
Income from continuing operations
Loss from discontinued operations
Net Income

1.06
($0.05)
$1.01

# of shares
10,600,000
(504,000)
10,096,000

10,000,000
10,000,000

BRIEF EXERCISE 4-5

STACY CORP.

Income from continuing operations

Unusual and infrequent pre-tax loss from volcano eruption
Interest revenue
Write down on buildings
Tax rate
Common stock shares outstanding

7,200,000
770,000
17,000
53,000
30%
5,000,000

INSTRUCTIONS:
Prepare a partial income statement starting with income from continuing operations.
STACY CORPORATION
Income Statement (partial)
For the Year Ended December 31, 2017
Income from Continuing Operations
Other Revenues and Gains

Interest Revenue

7,200,000
17,000
7,217,000

Other Expenses and Losses

Loss from volcano eruption
Impairment loss - Building
Income before income tax

770,000
53,000

823,000
6,394,000

Income tax expense

Net Income

Earnings per share

$1,918,200
$

4,475,800

0.90

BRIEF EXERCISE 4-6

WILLIAMSON COMPANY
CHANGE FROM FIFO TO WEIGHTED AV

During 2017, the company changed from FIFO to weighted average inventory pricing.
Pretax income in 2016 and 2015 (first year of operations) under FIFO:
2017
FIFO INCOME

2016
180,000

Pretax income using weighted average would have been:

IF WEIGHTED AVERAGE

180,000

145,000

TAX RATE 30%

Show comparative income statements beginning with "Income before income tax"
BRIEF EXERCISE 4-7

CHANGE IN BAD DEBT ESTIMATES

Vandross Company has recorded bad debt expense in the past at the rate of 1 1/2% of accounts
receivable, based on an aging analysis. Vandross decides to increase its estimate to 2%.
If the new rate had been used in previous years, cumulative bad debt expense would have been
$380,000 instead of $285,000.
In 2017, 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?

ZERO
CHANGES IN ESTIMATES ARE NOT HANDLED RETROSPECTIVELY.
BRIEF EXERCISE 4-8

Hollis Company reported net income for 2017

Declared and paid preferred stock dividends
Weighted average number of common shares outstanding

COMPUTE EPS

1,000,000
250,000
190,000

COMPUTE EARNINGS PER SHARE

1,000,000
(250,000)
750,000

BRIEF EXERCISE 4-9

190,000

RETAINED EARNINGS STATEMENT

PORTMAN CORP.

Retained earnings , 1-1-2017

Net income during 2017
Cash dividends declared and paid during 2017

675,000
1,400,000
75,000

PREPARE A RETAINED EARNINGS STATEMENT FOR 12-31-2017

Portman Corporation
Statement of Retained Earnings
For the year ended December 31, 2017
Retained earnings, January 1
Add: Net Income

Less: Cash dividends

675,000
1,400,000
(75,000)

Retained earnings, December 31

2,000,000

BRIEF EXERCISE 4-10

STATEMENT OF RETAINED EARNING

PRIOR PERIOD ADJUSTMENT

Using the information from BE4-9, prepare a retained earnings statement for the year ended
December 31, 2017. Assume an error was discovered: land costing $80,000 (net of tax) was
charged to maintenance and repairs expense in 2014.
Portman Corporation
Statement of Retained Earnings
For the year ended December 31, 2017
Retained earnings, January 1, as reported
Correction for overstatement of expenses in prior
period (net of tax)
Retained earnings, January 1, as adjusted

675,000
80,000
755,000

Add: Net Income

1,400,000

Less: Cash dividends

(75,000)

Retained earnings, December 31

2,080,000

BRIEF EXERCISE 4-11

COMPREHENSIVE INCOME

On January 1, 2017, Richards Inc. had

Cash
Common stock

60,000
60,000

At that date, the company has no other asset, liability or equity balances.
On January 2, it purchased for cash debt securities that it classified as available-for-sale
20,000
Interest received on these securities during the year

3,000

Unrealized holding gain on these securities

4,000

A
B
C

DETERMINE THE FOLLOWING FOR 2017:

NET INCOME
COMPREHENSIVE INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME
(for 2017)

Net Income - Interest revenue

3,000

Comprehensive income
Net income

3,000

Unrealized holding gain

Accumulated other comprehensive income, Jan 1

Unrealized holding gain
Accumulated other comprehensive income, Dec 31

4,000
7,000
4,000
4,000

2,400,000
31,000
2,431,000

2,120,200
$

310,800

4.44

ome Statement

shares

1.06
(0.05)
1.01

WEIGHTED AVERAGE

2015
160,000

170,000

ESTIMATES

of accounts
have been

f changing

TATEMENT

ED EARNINGS
MENT

r ended
ax) was

3.95