Chapter 5: The Income Statement and the Statement of Cash Flows
105. The following income statement information for 2014 and 2015 was obtained from the accounting records of
Upperco Company.
2014
2015
Sales
$200,000
$150,000
Beginning inventory
(a)
______
(e)
______
Purchases (net)
40,000
40,000
Ending inventory
25,000
5,000
Cost of goods sold
(b)
______
60,000
Gross profit
65,000
(f)
______
Operating expenses
(c)
______
(g)
______
Income before income taxes
(d)
______
40,000
Income tax expense (30%)
14,100
(h)
______
Net income (loss)
32,900
(i)
______
Required:
Fill in the blanks for the missing data.
Chapter 5: The Income Statement and the Statement of Cash Flows
106. The information for Roberts Company is presented below:
Cost of goods sold
$30,000
Purchases returns and allowances
1,500
Sales returns and allowances
3,750
Gross profit
25,000
Selling expenses
9,000
Net income
10,750
Transportation-in
1,250
Purchases
35,000
Ending inventory
8,790
Required:
Compute the following (ignore income taxes):
a.
Sales
b.
Beginning inventory
c.
$58,750
b.
$ 4,040
$ 5,250
35,000
1,250
30,000
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General and administrative expenses
Chapter 5: The Income Statement and the Statement of Cash Flows
107. The income statement information for 2014 and 2015 of Kloe Company is as follows:
2014
2015
Beginning inventory
$ 50,000
(d)
_______
Sales
400,000
(e)
_______
Purchases
300,000
$490,000
Purchases returns and allowances
5,000
20,000
Ending inventory
70,000
50,000
Sales returns and allowances
10,000
20,000
Gross profit
(a)
_______
100,000
Cost of goods sold
(b)
_______
500,000
Selling expenses
40,000
60,000
Transportation-in
8,000
10,000
General and administrative expenses
50,000
(f)
_______
Net income
(c)
_______
20,000
b.
d.
Required:
Fill in the blanks for the missing data. All the necessary information is listed.
Chapter 5: The Income Statement and the Statement of Cash Flows
108. The information below is taken from the December 31, 2016 adjusted trial balance of Rummer Company:
Inventory, 1/1/16
$140,000
Sales
700,000
Selling expenses
25,000
General and administrative expenses
50,000
Interest expense
15,000
Purchases
330,000
Purchases returns
5,000
Sales discounts
10,000
Freight-in
7,500
Loss on sale of a major component of the business (pretax)
15,000
The inventory on December 31, 2016 was $165,000. The income tax rate is 30%. There were 25,000 shares of
common stock outstanding throughout the year.
Required:
a.
Prepare a schedule of the cost of goods sold.
b.
Prepare a 2016 income statement for Rummer Company, using a multiple-step format
(disregard earnings per share).
c.
Prepare a 2016 income statement for Rummer Company, using a single-step format
(disregard earnings per share).
Chapter 5: The Income Statement and the Statement of Cash Flows
Chapter 5: The Income Statement and the Statement of Cash Flows
109. Taylor Corporation sold Division M (a business component). It was determined that the pretax loss from the
operations of Division M during the year totaled $50,000 and that a pretax gain of $125,000 was realized on the sale
of the division. The tax rate is 35%.
Required:
In good form, prepare the appropriate section of the income statement.
110. On May 1, 2016, Wheaton Company decided to dispose of its foreign sales operations (a change which represents a
strategic shift in the geographic area of Wheaton’s operations). The component was sold on November 24, 2016, for
$1,000,000 resulting in a $96,000 loss on the sale. The foreign sales operations recorded a $300,000 operating profit
in 2016 up to the date of sale. Wheaton Company is subject to a 30% income tax rate.
Required:
Prepare the results from discontinued operations section of Wheaton Company’s income statement for 2016.
Chapter 5: The Income Statement and the Statement of Cash Flows
111. On October 1, 2016, Croatan Corporation finalized its plans to discontinue operations of its retail component. The
plan calls for the sale of the retail operations to another company for $700,000 (current fair value) on April l, 2017.
The current book value of the assets is $800,000. For the first nine months of 2016, the component incurred a pretax
operating income of $60,000. During the last quarter of 2016, the pretax income was $10,000, while the expected
pretax income for the first quarter in 2017 is expected to be $20,000. Croatan is subject to a 30% income tax rate.
Required:
Prepare the results from discontinued operations section of Croatan’s income
statement for 2016, using good format. Show all computations.
Chapter 5: The Income Statement and the Statement of Cash Flows
112. Baxter, Inc., reported income from continuing operations (before taxes) of $55,000. In addition, there was a $15,000
loss (pretax) on the sale of a discontinued component of the business. Taxes of $16,500 (30%) were paid.
Required:
Prepare the bottom portion of the income statement.
Chapter 5: The Income Statement and the Statement of Cash Flows
113. Below are selected accounts taken from the adjusted trial balance of Sherri’s Designs on December 31, 2015:
Operating expenses
$1,000
Sales revenue
5,000
Inventory, Jan. 1, 2015
1,600
Purchases
1,200
Interest revenue
250
Loss on disposal of a discontinued component of the business (pre-tax)
400
Inventory, Dec. 31, 2015
750
Income tax expense
660
Sherri’s Designs has 2,000 shares of common stock outstanding and net income per share for 2015 was $0.63. The
income tax rate is 30%.
Required:
a.
Prepare a single-step income statement.
b.
Prepare a multiple-step income statement.
ANSWER:
Revenues:
Sales revenue
Interest revenue
Total revenue
Expenses:
Cost of goods sold (Schedule 1)
Operating expenses
Income tax expense
Total expenses
Income from continuing operations
of the business (net of $120 income tax credit)
Net income
Income from continuing operations
Loss on discontinued operations
Net income
Finished goods inventory, January 1, 2015
Less: Finished goods inventory, December 31, 2015
Chapter 5: The Income Statement and the Statement of Cash Flows
114. The following accounts are taken from the accounting records of Dory Company at December 31, 2015 after
adjustments:
Sales revenue
$250,000
Sales salaries expense
14,000
Administrative salaries expense
15,000
Depreciation expense: equipment
8,000
Purchases
160,000
Sales returns
1,000
Purchases returns
2,000
Freight-in
10,000
Inventory, 1/1/15
80,000
Retained earnings, 1/1/15
60,000
In addition, the following information is available:
·
The inventory on December 31, 2015, was $75,000.
·
Ten thousand shares of common stock were outstanding during the entire year. Dory paid
dividends of $1.00 per share.
·
At the end of October, Dory sold its unprofitable restaurant component. From January
through October, the component had incurred an operating loss (pretax) of $14,000. The
sale was made at a loss (pretax) of $8,000.
·
The applicable tax rate is 30%.
Sales revenue
Less: Sales returns
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Sales salaries expense
Administrative salaries expense
Depreciation expense: equipment
Total operating expenses
Pretax income from continuing operations
Income tax expense
Income from continuing operations
Results from discontinued operations
Loss from operations of discontinued
component
(net of $2,400 income tax credit)
Required:
Prepare a 2015 multiple-step income statement for the Dory Company.
Chapter 5: The Income Statement and the Statement of Cash Flows
115. Swiger Music Company had the following information related to its financial statements:
1) The company issued bonds in the amount of $50,000.
2) The company earned net income of $78,900 and declared a cash dividend of $0.25 per share. Currently there are
50,000 shares outstanding.
3) Retained earnings at January 1, 2016 was $82,000.
Required:
Prepare the reconciliation of retained earnings for December 31, 2016.
Chapter 5: The Income Statement and the Statement of Cash Flows
116. Information from the accounts of Gause Company is shown below:
Sales
$9,000,000
Purchases
5,000,000
Operating expenses
1,100,000
Gain on sale of equipment
100,000
Gain on sale of component
1,000,000
Operating loss from disposed component
200,000
Merchandise inventory, 12/31/16
1,900,000
The merchandise inventory on January 1, 2016, was $3,200,000. There were 250,000 shares of common stock
outstanding during the entire year.
Required:
Assuming a 30% income tax rate, prepare a 2016 income statement for Gause Company. Use a multiple-step format.
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Gain on sale of equipment
Pretax income from continuing operations
Income tax expense
Income from continuing operations
Results from discontinued operations:
(net of $60,000 tax credit)
Gain on sale of component
(net of $300,000 income taxes)
Net income
Components of Income
Income from continuing operations
Results from discontinued operations
Net income
Inventory, 1/1/16
Chapter 5: The Income Statement and the Statement of Cash Flows
117. Below is a list of terms:
1)
______
Expenses
2)
______
Gains
3)
______
Income from continuing operations
4)
______
Losses
5)
______
Net income
6)
______
Operating Income
7)
______
Other comprehensive income items
8)
______
Revenues
Required:
Match the appropriate term with the definitions shown below by placing the appropriate letter in the space provided.
a)
Increases in assets or settlement of liabilities from delivering goods or producing goods
b)
Outflows or using up assets
c)
Other increases in equity resulting from transactions other than revenue producing
d)
Decreases in equity
e)
Subtotal that represents the company’s ability to execute its business strategy and
generate profitability from its core, central operations
f)
Income total after income tax expense
g)
Bottom line of the income statement
h)
Change in equity of a company during a period from transactions, other events, and
circumstances relating to nonowner sources.
Chapter 5: The Income Statement and the Statement of Cash Flows
118. Below are the Consolidated Statements of Earnings (in part) for Starlights, Inc.
2017
2016
2015
Net earnings attributable to Starlights
$ 875
$ 725
$ 650
Earnings per share-basic
(a)
$ 1.09
(e)
Earnings per share-diluted
$ 1.25
(c)
$ 1.04
Weighted average shares outstanding:
Basic
678
(d)
654
Diluted
(b)
693
(f)
Cash dividends declared per share
$ 0.25
$ –
$ –
Required:
Compute the amounts for letters a through f.
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Chapter 5: The Income Statement and the Statement of Cash Flows
119. Accounting information might be separately reported in any of the following components of the income statement or
statement of retained earnings and their supporting schedules and footnotes:
a.
income from continuing operations or supporting schedules
b.
disclosure
c.
statement of retained earnings
d.
results from discontinued operations
Several items of accounting information are listed below.
____
1.
Loss on sale by a highly diversified company of one of its four manufacturing
plants
____
2.
Dividends to shareholders declared by the corporation during the year
____
3.
Operating loss of the current period of a component sold late in the year
____
4.
Total amount of cash paid to employees during the year
____
5.
Total selling expenses incurred by a producer of farm equipment during the year
Required:
Identify where the items of accounting information shown above would be most appropriately reported by placing
the letters (a–e) in the space provided. If the information would not appear in any of the above components, place an
(X) in the space. Items may be reported in more than one location.
3.
1.
a
4.
2
d
5.