FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-51A
(30-40 min.)
Requirements
Solution:
Req. 1
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
1. Record these transactions in Lyndell’s journal and show how to report the foreign-
currency transaction gain or loss on the income statement.
2. How will what you learned in this problem help you structure international
transactions?
Journal
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 41 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
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.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 42 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-52A
(25-35 min.)
Requirements
Solution:
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) (0.49)
Net income [($159,000 − $26,400) / 134,000] 0.99$
1. Compute BVL’s earnings per share. Start with income from continuing operations.
2. Analysts believe BVL can earn its current level of income for the indefinite future.
Estimate the market price of a share of BVL common stock at investment capitalization
rates of 8%, 10%, and 12%. Which estimate presumes an investment in BVL is the
most risky? How can you tell?
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 43 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-53A
(30-40 min.)
Requirements
Solution:
Req. 1
Revenues:
Sales revenue 870,000$
Expenses:
Cost of goods sold 385,000$
Natural Foods, Inc.
Income Statement
Year Ended June 30, 2016
1. Using the End-of-Chapter Summary Problem as an example, prepare a corrected
income statement for Natural Foods, Inc., for the fiscal year ended June 30, 2016. Use
the single-step format, which lists all revenues together and all expenses together. Also
prepare the earnings-per-share section of the statement.
2. Using Exhibit 11-2 as an example, prepare a Statement of Comprehensive Income
for
Natural Foods, Inc., for the fiscal year ended June 30, 2016. Start with net income, as
computed in Requirement 1
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 44 of 68
Selling expenses 104,000
General expenses 96,000
Income from continuing operations 199,500
Loss on discontinued operations, $25,000,
Earnings per share:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Computation of common shares outstanding:
*27,000 shares issued – 7,000 treasury shares = 20,000 shares outstanding
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 45 of 68
Net income 182,000$
Other comprehensive income:
Unrealized loss on investments in AFSS, $10,000, less
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-54A
(25-35 min.)
Requirements
Solution:
Req. 1
Pretax accounting income of 2016 230,000$
+ Additional taxable income for income
earned in 2017 that is taxed in 2016 13,000
−Additional depreciation expense for
MACRS tax depreciation (33,000)
Taxable income of 2016 210,000$
1. Compute Elemental’s taxable income for 2016.
2. Journalize the corporation’s income taxes for 2016.
3. Prepare the corporation’s single-step income statement for 2016.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 46 of 68
Req. 2
DATE DEBIT CREDIT
Req. 3
Cost of goods sold 480,000$
Operating expenses 200,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-55B
(20-30 min.)
Requirements
Solution:
Req. 1
Revenues and gains:
Sales revenue 542,000$
Dividend revenue 14,000
Gain on lawsuit settlement 8,000
Total revenues and gains 564,000
1. Using the End-of-Chapter Summary Problem as an example, prepare Clark
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. Clark’s top managers
hoped to earn income from continuing operations equal to 6% of sales.
Clark Cosmetics, Inc.
Income Statement
Year Ended December 31, 2016
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 47 of 68
Expenses and losses:
Income from continuing operations 39,660
Income from discontinued operations,
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Earnings per share:
Income from continuing operations
[($39,660 – $4,000* / 22,000**] 1.62$
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 48 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-56B
(10-15 min.)
Solution:
Retained earnings balance, December 31, 2015,
as originally reported 198,000$
Prior-period adjustment (debit) (8,000)
Prepare the Clark 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.
Clark 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 49 of 68
Retained earnings balance, December 31, 2015, as adjusted 190,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-57B
(10-15 min. — after working P 11-55B)
Solution:
Estimated
value
of Clark
common
stock
=
Estimated annual
income in the future
=
A Better Life Magazine story predicted the company’s income is bound to grow. It
appears that Clark 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 Clark’s common stock is 10%. How much
will this belief lead the investors to offer for Clark Cosmetics? Will Clark’s existing
stockholders be likely to accept this offer? Explain your answers.
Income from
continuing
operations ($36,660)
=
Investment
capitalization rate
$ 396,600
0.10
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 50 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-58B
(30-40 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
May 1 Accounts Receivable (€100,000 × $1.37) 137,000
Sales Revenue 137,000
10 Supplies 38,690
Accounts Payable (C$53,000 × $.73) 38,690
1. Record these transactions in Taupe’s journal and show how to report the foreign-
currency transaction gain or loss on the income statement.
2. How will what you learned in this problem help you structure international
transactions?
Journal
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 51 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
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.
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 52 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-59B
(20-25 min.)
Requirements
Solution:
Req. 1
Earnings per share:
Income from continuing operations
[($220,000 − $25,300) / 131,000]…………………………… 1.49$
1. Compute TSL’s earnings per share. Start with income from continuing operations.
2. Analysts believe TSL can earn its current level of income for the indefinite future.
Estimate the market price of a share of TSL common stock at investment capitalization
rates of 6%, 8%, and 10%. Which estimate presumes an investment in TSL is the most
risky? How can you tell?
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 53 of 68
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P11-60B
(30-40 min.)
Requirements
Solution:
Req. 1
Revenues:
Sales revenue $864,000
Expenses:
Cost of goods sold 387,000$
Northern Foods, Inc.
Income Statement
Year Ended June 30, 2016
1. Using the End-of-Chapter Summary Problem as an example, prepare a corrected
income statement for Northern Foods, Inc., for the fiscal year ended June 30, 2016.
Use the single-step format, which lists all revenues together and all expenses together.
Also prepare the earnings-per-share section of the statement.
2. Using Exhibit 11-2 as an example, prepare a Statement of Comprehensive Income
for
Northern Foods, Inc., for the fiscal year ended June 30, 2016. Start with net income, as
computed in Requirement 1
Chapter 11: Evaluating Performance: Earnings Quality,
the Income Statement, the Statement of Comprehensive Income
Page 54 of 68
Selling expenses 104,000
General expenses 99,000
Income from continuing operations 164,400
Income from discontinued operations,
Earnings per share: