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74. Lantos Company had a 20 percent tax rate. Given the following pre-tax amounts, what
would be the income tax expense reported on the face of the income statement?
Sales revenue $ 1,000,000
Cost of goods sold 600,000
Salaries and wages expense 80,000
Depreciation expense 110,000
Dividend revenue 90,000
Utilities expense 10,000
Discontinued operations loss 100,000
Interest expense 20,000
a. $54,000
b. $34,000
c. $36,000
d. $16,000
75. In 2020, Esther Corporation reported net income of $600,000. It declared and paid
preferred stock dividends of $150,000 and common stock dividends of $60,000. During
2020, Esther had a weighted average of 300,000 common shares outstanding. Compute
Esther’s 2020 earnings per share.
a. $1.30
b. $1.50
c. $2.00
d. $2.50
76. In 2020, Linz Corporation reported a discontinued operations loss of $1,200,000, net of
tax. It declared and paid preferred stock dividends of $120,000 and common stock
dividends of $360,000. During 2020, Linz had a weighted average of 500,000 common
shares outstanding. As a result of the discontinued operations loss, net of tax, the
earnings per share would decrease by
a. $1.44
b. $1.68
c. $2.16
d. $2.40
77. In 2020, Benfer Corporation reported net income of $210,000. It declared and paid
common stock dividends of $24,000 and had a weighted average of 100,000 common
shares outstanding. Compute the earnings per share to the nearest cent.
a. $2.34
b. $0.48
c. $1.86
d. $2.10
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78. Benedict Corporation reports the following information:
Net income $750,000
Dividends on common stock $210,000
Dividends on preferred stock $ 90,000
Weighted average common shares outstanding 250,000
Benedict should report earnings per share of
a. $1.80.
b. $2.16
c. $2.64.
d. $3.00.
79. Norling Corporation reports the following information:
Net income $750,000
Dividends on common stock $210,000
Dividends on preferred stock $ 90,000
Weighted average common shares outstanding 200,000
Norling should report earnings per share of
a. $2.25.
b. $2.70
c. $3.30.
d. $3.75.
80. Moorman Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 1,290,000
Dividends declared 960,000
Net income 3,000,000
Retained earnings, 1/1/20, as reported 6,000,000
Moorman should report retained earnings, 1/1/20, as adjusted at
a. $4,710,000.
b. $6,000,000.
c. $7,290,000.
d. $9,330,000.
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81. Moorman Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 1,290,000
Dividends declared 960,000
Net income 3,000,000
Retained earnings, 1/1/20, as reported 6,000,000
Moorman should report retained earnings, 12/31/20, at
a. $4,710,000.
b. $6,750,000.
c. $8,040,000.
d. $9,330,000.
82. Leonard Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax $ 645,000
Dividends declared 480,000
Net income 1,500,000
Retained earnings, 1/1/20, as reported 6,000,000
Leonard should report retained earnings, 1/1/20, as adjusted at
a. $5,355,000.
b. $6,000,000.
c. $6,645,000.
d. $7,665,000.
83. Leonard Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax $ 645,000
Dividends declared 480,000
Net income 1,500,000
Retained earnings, 1/1/20, as reported 6,000,000
Leonard should report retained earnings, 12/31/20, at
a. $5,355,000.
b. $6,375,000.
c. $7,020,000.
d. $7,665,000.
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84. The following information was extracted from the accounts of Essex Corporation at
December 31, 2020:
CR(DR)
Total reported income since incorporation $4,800,000
Total cash dividends paid (2,400,000)
Unrealized holding loss on available-for-sale debt securities (360,000)
Total stock dividends distributed (600,000)
Prior period adjustment, recorded January 1, 2020 225,000
What should be the balance of retained earnings at December 31, 2020?
a. $1,665,000.
b. $1,800,000.
c. $2,940,000.
d. $2,025,000.
85. Madsen Company reported the following information for 2020:
Sales revenue $2,040,000
Cost of goods sold 1,400,000
Operating expenses 220,000
Unrealized holding gain on available-for-sale debt securities 120,000
Cash dividends received on the securities 8,000
For 2020, Madsen would report other comprehensive income of
a. $428,000.
b. $420,000.
c. $128,000.
d. $120,000.
86. Korte Company reported the following information for 2020
Sales revenue $2,500,000
Cost of goods sold 1,750,000
Operating expenses 275,000
Unrealized holding gain on available-for-sale debt securities 85,000
Cash dividends received on the securities 10,000
For 2020, Korte would report comprehensive income of
a. $570,000.
b. $560,000.
c. $485,000.
d. $85,000.
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87. For the year ended December 31, 2020, Transformers Inc. reported the following:
Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as its ending balance of Accumulated Other
Comprehensive Income?
a. $30,000
b. $25,000
c. $20,000
d. $5,000
88. For the year ended December 31, 2020, Transformers Inc. reported the following:
Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings, beginning balance 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as the ending balance of Retained Earnings?
a. $695,000
b. $665,000
c. $640,000
d. $635,000
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89. For the year ended December 31, 2020, Transformers Inc. reported the following:
Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings, beginning balance 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as total stockholders’ equity?
a. $860,000
b. $840,000
c. $640,000
d. $600,000
Multiple Choice Answers—Computational
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MULTIPLE CHOICE—CPA Adapted
90. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and
administrative. The adjusted trial balance at December 31, 2020, included the following
expense accounts:
Accounting and legal fees $420,000
Advertising 360,000
Freight-out 225,000
Interest 180,000
Loss on sale of long-term investments 90,000
Officers’ salaries 540,000
Rent for office space 540,000
Sales salaries and commissions 405,000
One-half of the rented premises is occupied by the sales department.
How much of the expenses listed above should be included in Perry’s selling expenses for
2020?
a. $765,000.
b. $990,000.
c. $1,035,000.
d. $1,260,000.
91. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and
administrative. The adjusted trial balance at December 31, 2020, included the following
expense accounts:
Accounting and legal fees $420,000
Advertising 360,000
Freight-out 225,000
Interest 180,000
Loss on sale of long-term investments 90,000
Officers’ salaries 540,000
Rent for office space 540,000
Sales salaries and commissions 405,000
One-half of the rented premises is occupied by the sales department.
How much of the expenses listed above should be included in Perry’s general and
administrative expenses for 2020?
a. $1,230,000.
b. $1,320,000.
c. $1,410,000.
d. $1,500,000.
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92. Didde Corp. reports operating expenses in two categories: (1) selling and (2) general and
administrative. The adjusted trial balance at December 31, 2020 included the following
expense and loss accounts:
Accounting and legal fees $210,000
Advertising 290,000
Freight-out 120,000
Interest 105,000
Loss on sale of long-term investment 45,000
Officers’ salaries 335,000
Rent for office space 330,000
Sales salaries and commissions 355,000
One-half of the rented premises is occupied by the sales department. Didde’s total selling
expenses for 2020 are
a. $930,000.
b. $810,000.
c. $765,000.
d. $645,000.
93. The following items were among those that were reported on Dye Co.’s income statement
for the year ended December 31, 2020:
Legal and audit fees $580,000
Rent for office space 720,000
Interest on inventory floor plan 840,000
Loss on abandoned equipment used in operations 140,000
The office space is used equally by Dye’s sales and accounting departments. What
amount of the above-listed items should be classified as general and administrative
expenses in Dye’s multiple-step income statement?
a. $940,000.
b. $1,080,000.
c. $1,300,000.
d. $1,780,000.
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94. Logan Corp.’s trial balance of income statement accounts for the year ended December 31,
2020 included the following:
Debit Credit
Sales revenue $280,000
Cost of goods sold $170,000
Administrative expenses 40,000
Loss on disposal of equipment 18,000
Sales commission expense 16,000
Interest revenue 10,000
Freight-out 6,000
Loss from discontinued operations 24,000
Bad debt expense 6,000
Totals $280,000 $290,000
Other information:
Logan’s income tax rate is 20%. Finished goods inventory:
January 1, 2020 $160,000
December 31, 2020 140,000
On Logan’s multiple-step income statement for 2020, cost of goods manufactured is
a. $196,000.
b. $190,000.
c. $156,000.
d. $150,000.
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95. Logan Corp.’s trial balance of income statement accounts for the year ended December 31,
2020 included the following:
Debit Credit
Sales revenue $280,000
Cost of goods sold $170,000
Administrative expenses 40,000
Loss on disposal of equipment 18,000
Sales commission expense 16,000
Interest revenue 10,000
Freight-out 6,000
Loss from discontinued operations 24,000
Bad debt expense 6,000
Totals $280,000 $290,000
Other information:
Logan‘s income tax rate is 20%. Finished goods inventory:
January 1, 2020 $160,000
December 31, 2020 140,000
On Logan’s multiple-step income statement for 2020, income from continuing operations
is
a. $68,000
b. $34,000
c. $27,200.
d. $8,000.
96. Logan Corp.’s trial balance of income statement accounts for the year ended December 31,
2020 included the following:
Debit Credit
Sales revenue $280,000
Cost of goods sold $170,000
Administrative expenses 40,000
Loss on sale of equipment 18,000
Commissions to salespersons 16,000
Interest revenue 10,000
Freight-out 6,000
Loss from discontinued operations 24,000
Bad debt expense 6,000
Totals $280,000 $290,000
Other information:
Logan’s income tax rate is 20%. Finished goods inventory:
January 1, 2020 $160,000
December 31, 2020 140,000
On Logan’s multiple-step income statement for 2020, the discontinued operations loss is
a. $19,200.
b. $24,000
c. $33,600
d. $42,000
97. Chase Corp. had the following unusual transactions during 2020:
A $450,000 gain from selling the only investment Chase has ever owned.
A $630,000 gain on the sale of equipment.
A $210,000 loss on the write-down of inventories.
In its 2020 income statement, what amount should Chase report as total unusual net
gains?
a. $240,000.
b. $420,000.
c. $870,000.
d. $1,080,000.
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98. James, Inc. incurred the following infrequent losses during 2020:
A $280,000 write-down of equipment leased to others.
A $160,000 adjustment of accruals on long-term contracts.
A $240,000 write-off of obsolete inventory.
In its 2020 income statement, what amount should James report as total unusual losses?
a. $680,000.
b. $520,000.
c. $440,000.
d. $400,000.
99. Which of the following should be reported as a prior period adjustment?
Change in Estimated Lives Mistakes in the Application of
of Depreciable Assets Accounting Principles
a. Yes Yes
b. No Yes
c. Yes No
d. No No
Multiple Choice Answers—CPA Adapted
DERIVATIONS — Computational
No. Answer Derivation
Income Statement and Related Information
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No. Answer Derivation
Test Bank for Intermediate Accounting, Seventeenth Edition
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DERIVATIONS — CPA Adapted
No. Answer Derivation
Income Statement and Related Information
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BRIEF EXERCISES
BE. 4-100—Definitions.
Provide clear, concise answers for the following.
1. What are revenues?
2. What are expenses?
3. What are gains?
4. What are losses?
5. When does a discontinued operation occur?
6. Indicate how earnings per share is computed.
7. State the primary category of prior period adjustments and indicate how they are reported in
the financial statements.
Solution 4-100
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BE. 4-101—Terminology.
In the space provided, write the word or phrase that is defined or indicated.
1. Net income minus preferred dividends
divided by the weighted average of shares
outstanding. 1. ________________________________
2. All changes in equity during a period except
those resulting from investments by owners
and distributions to owners. 2. ________________________________
3. A correction of an error is reported as a 3. ________________________________
4. The portion of equity interest in a subsidiary
not attributable to the parent company. 4. ________________________________
5. The income statement category for a
disposal of a component of a business. 5. ________________________________
6. Relating tax expense to specific items
on the income statement. 6. ________________________________
BE. 4-102—Income statement disclosures.
What is disclosed in an income statement? Be specific.
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EXERCISES
Ex. 4-103—Calculation of net income from the change in stockholders’ equity.
Presented below is certain information pertaining to Edson Company.
Assets, January 1 $250,000
Assets, December 31 230,000
Liabilities, January 1 150,000
Common stock, December 31 90,000
Retained earnings, December 31 41,000
Common stock sold during the year 10,000
Dividends declared during the year 13,000
Compute the net income for the year.
Ex. 4-104—Calculation of net income from the change in stockholders’ equity.
Presented below are changes in the account balances of Wenn Company during the year, except
for retained earnings.
Increase Increase
(Decrease) (Decrease)
Cash $29,000 Accounts payable $34,000
Accounts receivable (net) (18,000) Bonds payable (20,000)
Inventory 52,000 Common stock 62,000
Plant assets (net) 57,000 Paid-in capital 16,000
The only entries in Retained Earnings were for net income and a dividend declaration of $17,000.
1. Compute the net income for the current year.
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2. Explain what else can affect the Retained Earnings account.
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Solution 4-104
Ex. 4-105—Income Computations
Presented below is information related to Wise Company at December 31, 2020, the end of its
first year of operations.
Sales revenue $775,000
Cost of goods sold 350,000
Selling and administrative expenses 125,000
Gain on sale of plant assets 75,000
Unrealized gain on available-for-sale investments 25,000
Interest expense 15,000
Loss on discontinued operations 30,000
Allocation to noncontrolling interest 100,000
Dividends declared and paid 12,000
Instructions
Compute the following: (a) income from operations, (b) net income, (c) net income attributable to
Wise Company’s controlling stockholders, (d) comprehensive income, and (e) retained earnings
balance at December 31, 2020. Ignore income tax effects.
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