FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-20A
(10 min.)
Solution:
7.40$
Compute Altar Loan’s earnings per common share (EPS) for 2016; round EPS to two
decimal places. Assume the number of shares issued and outstanding did not change
during the year.
Net income – preferred
dividends
$6,200,000 − ($900,000 × .06)
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 21 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-21A
(10 min.)
Requirement
Solution:
(Amounts in millions, except per-share amounts)
Earnings per share of common stock (400* shares outstanding):
Using the end-of-chapter summary problem as an example, show how Athens should
report earnings per share for 2016; round EPS to the nearest cent.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 22 of 68
Income from continuing operations ($576 / 400) 1.44$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-22A
(10 min.)
Requirement
Solution:
(Millions)
Retained earnings balance, December 31, 2015,
as originally reported 344$
Prior-period adjustment 13
EcoClean, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
1. Using the end-of-chapter summary problem as an example, prepare the
company’s statement of retained earnings for the year ended December 31,
2016. How does the prior-period adjustment affect EcoClean’s net income for
2016?
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 23 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-23A
(20-30 min.)
Requirements
Solution:
Req. 1
Net income 3,600,000$
Other comprehensive income (loss):
Bacarella International Corporation
Statement of Comprehensive Income
Year Ended December 31, 2016
Net unrealized gains on available-
1. Prepare the Statement of Comprehensive Income for Bacarella International
Corporation for the year ended December 31, 2016. Use Exhibit 11-2 as an
example.
2. Explain where the following items will appear in Bacarella International
Corporation’s Statement of Stockholder’s Equity for the year ended December 31,
2016:
a. Net income
b. Net unrealized gains from available-for-sale securities, net of taxes
c. Foreign-currency translation gains from consolidation of Mexican subsidiary, net
of taxes
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 24 of 68
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-24A
(15-20 min.)
Requirements
Solution:
Req. 1
1. What are The Procter & Gamble Company’s segments as of the end of its 2014
fiscal year?
2. Which segments appear to be performing better in 2014 than they did in 2013?
3. Which segments were the most profitable in 2014? Least profitable? Evaluate
the overall profitability of The Procter & Gamble Company as of the close of 2014.
4. What can you learn from analyzing this segment information that helps make
you a more prospective investor in The Procter & Gamble Company?
The Proctor & Gamble Company reports these segments: Beauty; Grooming;
Health Care; Fabric Care and Home Care; and Baby, Feminine and Family Care.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 25 of 68
Req. 2
Req. 3
Req. 4
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-25B
(15-20 min.)
Requirements
Solution:
Req.1
Thousands
Net sales 13,300$
Total operating expenses 12,200
Victor Cycles, Inc.
Income Statement
Year Ended September 30, 2016
1. Show how the Victor Cycles, Inc., multistep income statement for the year
ended September 30, 2016, should appear. Omit earnings per share. Use the
end-of-chapter summary problem as an example.
2. Prepare the Statement of Comprehensive Income for Victor Cycles, Inc., for
the year ended September 30, 2016. Use Exhibit 11-2 as an example.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 26 of 68
Req.2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-26B
(20-25 min.)
Requirements
Solution:
Req. 1
Thousands
Sales revenue 129,000$
Other revenues 2,300
1. Prepare Calloway Book’s single-step income statement for the year ended
December 31, 2016, including EPS. Calloway Book had 1,000,000 shares of
common stock and no preferred stock outstanding during the year.
2. Assume Calloway Book Company’s income from operations reflects that its
core business been steadily increasing by about 10% per year over the past
three years and that none of its operations have been discontinued. What
does this say about the quality of its earnings?
3. Assume investors capitalize Calloway Book earnings from continuing
operations at 8%. Estimate the price of one share of the company’s stock.
Calloway Book Company
Income Statement
Year Ended December 31, 2016
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 27 of 68
Total revenue 131,300
Total operating expenses 104,800
Earnings per share (EPS):
Req. 2
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-27B
(10-15 min.)
Solution:
EPS from continuing
operations
Estimated value of
one share of
=
Investment
What investment capitalization rate did investors appear to be using to
determine the value of one share of Rondell stock? The formula for the value of
one share of stock uses EPS in the calculation.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 28 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-28B
(10-15 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
May 9 Inventory 7,040
Accounts Payable (800,000 yen × $.0088) 7,040
1. Journalize these transactions for Newman. Focus on the gains and losses caused by
changes in foreign-currency rates; round your answers to the nearest whole dollar.
2. On May 10, immediately after the purchase, and on June 23, immediately after the
sale, which currencies did Newman want to strengthen? Which currencies did in fact
strengthen? Explain your reasoning.
Journal
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 29 of 68
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-29B
(10-15 min.)
Requirements
Solution:
Req. 1
Income Tax Expense ($420,000 × .40) 168,000
Income Tax Payable ($390,000 × .40) 156,000
Deferred Tax Liability 12,000
1. Journalize Botto Heights’ income taxes for 2016.
2. How much income tax did Botto Heights have to pay for the year 2016?
3. At the beginning of 2016, Botto Heights’ balance of Deferred Tax Liability was
$37,000. How much Deferred Tax Liability did Botto Heights report on its balance sheet
at December 31, 2016?
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 30 of 68
Req. 2
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-30B
(10 min.)
Solution:
$6,300,000 − ($500,000 × .10) $ 6.79
Compute Prestige Loan’s earnings per common share (EPS) for 2016. (Round EPS
to two decimal places.) Assume the number of shares issued and outstanding did
not change during the year.
Net income – preferred
dividends
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 31 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-31B
(10 min.)
Requirement
Solution:
(Amounts in millions, except per-share amounts)
Using the end-of-chapter summary problem as an example, show how Crocker should
report earnings per share for 2016; round EPS to the nearest cent.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 32 of 68
Earnings per share of common stock (800* shares outstanding):
Income from continuing operations ($576 / 800) 0.72$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-32B
(10 min.)
Requirement
Solution:
(Millions)
Retained earnings balance, December 31, 2015,
as originally reported 345$
EverClean, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
Using the end-of-chapter summary problem as an example, prepare the company’s
statement of retained earnings for the year ended December 31, 2016. How does the
prior-period adjustment affect EverClean’s net income for 2016?
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 33 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-33B
(20-30 min.)
Requirements
Solution:
Req. 1
Net income 4,200,000$
Other comprehensive income (loss):
Martinson International Corporation
Statement of Comprehensive Income
Year Ended December 31, 2016
1. Prepare the Statement of Comprehensive Income for Martinson International
Corporation for the year ended December 31, 2016. Use Exhibit 11-2 as an
example.
2. Explain where the following items will appear in Martinson International
Corporation’s Statement of Stockholder’s Equity for the year ended December
31, 2016:
a. Net income
b. Net unrealized losses from available-for-sale securities, net of taxes
c. Foreign-currency translation losses from consolidation of Brazilian subsidiary,
net of taxes
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 34 of 68
Foreign currency translation losses, net of tax (180,000)
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E11-34B
(20-25 min.)
Requirements
Solution:
Req. 1
1. Based on this information, what do you think are Nike, Inc.’s, reportable segments
as of the end of its 2014 fiscal year?
2. Which segments appear to be growing fastest in 2014? Slowest?
3. Which segments were the most profitable in 2014? Least profitable? Evaluate the
overall profitability of Nike, Inc., as of the close of 2014.
4. What can you learn from analyzing this segment information that helps make you a
more prospective investor in Nike, Inc.?
Nike, Inc.’s segments appear to be geographic-North American, Western Europe,
Central & Eastern Europe, Greater China, Japan, Emerging Markets, and Global
Brands.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 35 of 68
Req. 2
Req. 3
Req. 4
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Quiz
Q11-35 c
Q11-36 a
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 36 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-48A
(20-30 min.)
Requirements
Solution:
Req. 1
Revenues and gains:
Sales revenue $536,000
Dividend revenue 12,000
Daughtry Cosmetics, Inc.
Income Statement
Year Ended December 31, 2016
1. Using the End-of-Chapter Summary Problem as an example, prepare Daughtry
Cosmetics’ single-step income statement, which lists all revenues together and all
expenses together, for the fiscal year ended December 31, 2016. Include earnings-per-
share data. For purposes of earnings per share, assume dividends have been declared
on preferred stock as of December 31.
2. Evaluate income for the year ended December 31, 2016. Daughtry’s top managers
hoped to earn income from continuing operations equal to 7% of sales.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 37 of 68
Total revenues and gains 554,000
Income from continuing operations 41,500
Income from discontinued operations,
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Earnings per share:
Income from continuing operations
[($41,500 – $1,500*) / 20,000**] 2.00$
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 38 of 68
Income from discontinued operations, net of tax ($7,200 / 20,000) 0.36
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-49A
(10-15 min.)
Solution:
Retained earnings balance, December 31, 2015,
as originally reported 196,000$
Prepare the Daughtry Cosmetics statement of retained earnings for the year ended
December 31, 2016. Use the Statement of Retained Earnings in the End-of-Chapter
Summary Problem as a model.
Daughtry Cosmetics, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 39 of 68
Retained earnings balance, December 31, 2015,
as adjusted 191,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-50A
(10-15 min. – after working P11-48A)
Solution:
A BetterLife Magazine story predicted the company’s income is bound to grow. It
appears that Daughtry can earn at least its current level of income for the indefinite
future. Based on this information, the investors think that an appropriate investment
capitalization rate for estimating the value of Daughtry’s common stock is 10%. How
much will this belief lead the investors to offer for Daughtry Cosmetics? Will Daughtry’s
existing stockholders be likely to accept this offer? Explain your answers.
Estimated
value
Estimated annual
income in the
Income from
continuing
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 40 of 68