(10 min.) E 11-21A
Req. 1
(Amounts in millions, except per-share amounts)
Earnings per share of common stock (400* shares
outstanding):
Income from continuing operations ($576 / 400) ……………..
$ 1.44
(10 min.) E 11-22A
Req. 1
EcoClean, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
(Millions)
Retained earnings balance, December 31, 2015,
as originally reported …………………………………………………….
$344
Prior-period adjustment …………………………………………………….
13
Retained earnings balance, December 31, 2015,
as adjusted …………………………………………………………………..
357
Net income for 2016 …………………………………………………………..
Subtotal
(20-30 min.) E 11-23A
Req. 1
Bacarella International Corporation
Statement of Comprehensive Income
Year Ended December 31, 2016
Net income …………………………………………………………………
$3,600,000
Other comprehensive income (loss):
Net unrealized gains on available–for-sale securities,
net of tax …………………………………………………………………
$120,000
160,000
Other comprehensive income (loss) …………………………...
Req. 2
a. Net income is added to retained earnings.
b. Net unrealized gains from available-for-sale securities are included
in accumulated other comprehensive income, in stockholders’
equity.
(15-20 min.) E 11-24A
Req. 1
The Proctor & Gamble Company reports these segments: Beauty;
Grooming; Health Care; Fabric Care and Home Care; and Baby,
Feminine and Family Care.
Req. 2
Req. 3
In terms of dollar amounts, the most profitable segment was Fabric Care
and Home Care, with net earnings from continuing operations of $3,039
million. The least profitable segment was Health Care, with net earnings
from continuing operations of $1,083 million. However, in terms of
Req. 4
The investor learns more details about the individual parts that make up
the whole company. Also as you read business information about
(15-20 min.) E 11-25B
Req.1
Victor Cycles, Inc.
Income Statement
Year Ended September 30, 2016
Thousands
Net sales …………………………………………………………………..
$13,300
Total operating expenses …………………………………………..
12,200
Income from continuing operations before
income tax …………………………………………………………….
Income tax expense …………………………………………………..
Income from continuing operations …………………………...
Income from discontinued operations,
$280, less income tax, $56 ……………………………………..
Req.2
Victor Cycles, Inc.
Statement of Comprehensive Income
Year Ended September 30, 2016
Thousands
Net income ………………………………………………………………
$1,029
Other comprehensive income (loss):
Unrealized gain on investments in AFSS, net of tax ..
$ 35
Foreign-currency translation gain, net of tax ………….
Total other comprehensive income …………………………..
Comprehensive income …………………………..……………….
(20-25 min.) E 11–26B
Req. 1
Calloway Book Company
Income Statement
Year Ended December 31, 2016
Thousands
Sales revenue
$129,000
Other revenues
2,300
Total revenue
131,300
Total operating expenses
Income tax expense
Net income
Earnings per share (EPS):
Req. 2
The company’s quality of earnings would be considered to be good,
based on its steady growth each year and no discontinued operations
during recent years.
Req. 3
(10-15 min.) E 11-27B
Estimated
EPS for
value of
=
continuing operations
one share of
Investment
Rondell, Inc. stock
capitalization rate
=
(10-15 min.) E 11-28B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
May
9
Inventory …………………………………………………..
7,040
Accounts Payable (800,000 yen × $.0088) ..
7,040
June
18
Accounts Payable………………………………………
7,040
Cash (800,000 yen × $.0081) ……………………
6,480
Foreign-Currency Transaction Gain ………..
560
22
Accounts Receivable (50,000 euros × $1.21) ..
60,500
Sales Revenue ……………………………………….
28
Cash (50,000 euros × $1.13) ………………………..
Foreign-Currency Transaction Loss ……………
4,000
Accounts Receivable ……………………………..
Req. 2
On May 10, Newman Stores wanted the dollar to strengthen in order
to pay Harajuku with yen that cost fewer dollars. That was what
happened, and Newman had a foreign-currency transaction gain.
(10-15 min.) E 11-29B
Req. 1
Income Tax Expense ($420,000 × .40) ………….
168,000
Income Tax Payable ($390,000 × .40)……….
156,000
Deferred Tax Liability …………………………….
12,000
Req. 2
Req. 3
(10 min.) E 11-30B
Net income –
preferred dividends
=
$6,300,000 − ($500,000 × .10)
=
$6.79
Common shares
outstanding
920,000*
(10 min.) E 11-31B
Req. 1
(Amounts in millions, except per-share amounts)
Earnings per share of common stock (800* shares
outstanding):
Income from continuing operations ($576 / 800) ………………
$ .72
(10 min.) E 11-32B
Req. 1
EverClean, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
(Millions)
Retained earnings balance, December 31, 2015,
as originally reported …………………………………………………….
$345
Prior-period adjustment …………………………………………………….
(12)
Retained earnings balance, December 31, 2015,
as adjusted …………………………………………………………………..
333
Net income for 2016 …………………………………………………………..
Subtotal
432
Dividends declared for 2016 ………………………………………………
(20-30 min.) E 11-33B
Req. 1
Martinson International Corporation
Statement of Comprehensive Income
Year Ended December 31, 2016
Net income ……………………………………………………….
$4,200,000
Other comprehensive income (loss):
$(180,000)
Foreign currency translation losses, net of tax …..
Other comprehensive income (loss) …………………..
Comprehensive income …………………………………….
$3,840,000
Req. 2
a. Net income is added to retained earnings.
b. Net unrealized losses from available-for-sale securities are
included in accumulated other comprehensive income, in
stockholders’ equity (as a deduction).
(20-25 min.) E 11-34B
Req. 1
Nike, Inc.’s segments appear to be geographic–North American, Western
Europe, Central & Eastern Europe, Greater China, Japan, Emerging
Markets, and Global Brands.
Req. 2
Req. 3
The most profitable segments reporting the highest dollars of profits
during 2014 were North America and Emerging Markets. Global Brand
Divisions reported a loss and the lowest profit was reported by Japan.
Overall, Nike was profitable with earnings before interest and taxes to
revenues of 12.9%. The segments with the highest percent of earnings
before interest and taxes to revenues is Greater China (31%) and North
America (25%).
Req. 4
Student responses may vary.
Quiz
Q11–35
c
Q11–36
a
Q11–37
d ($38,000 / 0.10 = $380,000)
Q11–38
a (¥150,000 × $0.0088 = $1,320)
Q11–39
d
Q11–40
a
Q11–42
d
Q11–43
d
Q11–44
a
Q11–45
b
Q11–46
b
Q11–47
b
Problems
(20-30 min.) P 11-48A
Req. 1
Daughtry Cosmetics, Inc.
Income Statement
Year Ended December 31, 2016
Revenues and gains:
Sales revenue ………………………………………………
$536,000
Dividend revenue …………………………………………
12,000
Gain on lawsuit settlement …………………………...
6,000
Total revenues and gains …………………………...
554,000
Expenses and losses:
Cost of goods sold ……………………………………….
$302,000
Selling expenses ………………………………………….
81,000
General expenses …………………………………………
Interest expense …………………………………………..
21,000
Loss on sale of plant assets ………………………….
10,000
Income tax expense ……………………………………..
Total expenses and losses ………………………….
Income from continuing operations ………………….
41,500
Income from discontinued operations,
7,200
(continued) P 11-48A
Req. 1 (continued)
Earnings per share:
Income from continuing operations
[($41,500 – $1,500*) / 20,000**] ………………………………………..
$2.00
Income from discontinued operations, net of tax ……………….
Net income [($48,700 − $1,500) / 20,000] …………………………….
$2.36
Req. 2
The company hoped to earn income from continuing operations equal
to 7% of sales. Income from continuing operations was 7.7% of sales
(10-15 min.) P 11-49A
Daughtry Cosmetics, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
Retained earnings balance, December 31, 2015,
as originally reported ………………………………………………….
$196,000
Prior-period adjustment (debit), net of taxes ……………………..
(5,000)
Retained earnings balance, December 31, 2015,
as adjusted ………………………………………………………………..
191,000
Net income for 2016 …………………………………………………………
48,700
Subtotal
Dividends declared for 2016 …………………………………………….
(10-15 min. — after working P 11-48A) P 11-50A
Estimated value
of Daughtry
common stock
Estimated annual
Income from continuing
=
income in the future
=
operations ($41,500)
=
$415,000
Investment
.10
capitalization rate
Current market value of
= $480,000 (20,000 shares* × $24 per share)
Daughtry common stock
(30-40 min.) P 11-51A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
May
1
Accounts Receivable (€80,000 × $1.34) ……..
107,200
Sales Revenue…………………………………….
107,200
10
Supplies ………………………………………………….
45,430
Accounts Payable (C$59,000 × $.77) …….
45,430
17
266,340
Sales Revenue…………………………………….
266,340
22
Cash (€80,000 × $1.37) ……………………………..
Accounts Receivable …………………………..
Foreign-Currency Transaction Gain ……..
2,400
June
18
Accounts Payable ……………………………………
45,430
Cash (C$59,000 × $.76) ………………………..
44,840
Foreign-Currency Transaction Gain ……..
590
24
Cash (₤138,000 × $1.90) …………………………...
262,200
Foreign-Currency Transaction Loss ………….
4,140
Accounts Receivable …………………………..
266,340
(continued) P 11-51A
Req. 2
This problem demonstrates that the final amount of a cash receipt or
cash payment on an international transaction may differ from the initial
dollar amount of the transaction. You can learn the need to hedge
(25-35 min.) P 11-52A
Req. 1
Earnings per share:
Income from continuing operations
[($225,000 − $26,400*) / 134,000] ………………………………….
$1.48
Loss on discontinued operations ($66,000 / 134,000) ………..
Req. 2
Investment Capitalization Rates
8%
10%
12%
Estimated value
of BVL
common stock
=
$1.48
$1.48
$1.48
.08
.10
.12
=
$18.50
$14.80
$12.33
(30-40 min.) P 11-53A
Req. 1
Natural Foods, Inc.
Income Statement
Year Ended June 30, 2016
Revenues:
Sales revenue ……………………………………………
$870,000
Expenses:
Cost of goods sold ……………………………………
$385,000
Selling expenses ……………………………………….
104,000
General expenses ……………………………………..
96,000
Income tax expense …………………………………..
85,500
Total expenses …………………………...
670,500
Income from continuing operations ………………..
199,500
Loss on discontinued operations, $25,000,
less income tax savings of $7,500 ………………