EXERCISE 4.3 (Continued)
(c)
Income attributed to controlling stockholders = (Net income –
allocation to noncontrolling interest):
EXERCISE 4.4 (20–25 minutes)
LEROI JONES INC.
Income Statement
For Year Ended December 31, 2020
$1,233,000
$500,000
63,900
EXERCISE 4.4 (Continued)
Determination of amounts
(a) Administrative expenses
=
20% of cost of good sold
=
20% of $500,000
=
$100,000
(b) Gross sales X 8%
=
administrative expenses
=
$1,250,000
(c) Selling expenses
=
four times administrative expenses.
(operating expenses consist of selling
and administrative expenses; since
selling expenses are 4/5 of operating
expenses, selling expenses are 4
=
4 X $100,000
=
$400,000
(d) Earnings per share $7.46 ($149,100 ÷ 20,000)
EXERCISE 4.5 (30–35 minutes)
(a) Multiple-Step Form
P. BRIDE COMPANY
Income Statement
For the Year Ended December 31, 2020
(In thousands, except earnings per share)
Sales revenue …………………………………………….
$96,500
Cost of goods sold ……………………………………..
60,570
Gross profit …………………………..……………………
Sales commissions ………………………….
Depr. of sales equipment ………………….
Delivery expense ……………………………..
$17,150
Administrative expenses
Officers’ salaries ………………………………
Income from operations ………………
9,920
Other Revenues and Gains:
Rent revenue …………………………..…………….
17,230
Other Expenses and Losses:
Interest expense ……………………………………
1,860
Income before income tax …………………………..
Income tax …………………………………………….
9,070
EXERCISE 4.5 (Continued)
(b) Single-Step Form
P. BRIDE COMPANY
Income Statement
For the Year Ended December 31, 2020
(In thousands, except earnings per share)
Revenues
Net sales ………………………………………………………………….
$ 96,500
Rental revenue …………………………………………………………
17,230
Total revenues …………………………………………………….
Expenses
Cost of goods sold …………………………………………………..
60,570
Selling expenses ………………………………………………………
17,150
Administrative expenses …………………………………………..
Interest expense ………………………………………………………
1,860
Total expenses ……………………………………………………
88,440
Income before income tax ………………………………………………
25,290
Income tax …………………………………………………………………….
9,070
Net income ………………………………………………………………
$ 16,220
Earnings per share ………………………………………………………..
Note: An alternative income statement format for the single-step form is to
show income tax a part of expenses, and not as a separate item.
(c) Single-step:
EXERCISE 4.5 (Continued)
Multiple-step:
1. Provides more information through segregation of operating and
EXERCISE 4.6 (30–35 minutes)
ALONZO CORP.
Income Statement
For the Year Ended December 31, 2020
Sales Revenue
Sales revenue …………………………………………………..
$1,380,000
Less: Sales returns and allowances …………………..
Sales discounts ………………………………………
195,000
Net sales …………………………………………………………..
Cost of goods sold ……………………………………………
621,000
Gross profit on sales ………………………………………………
Selling expenses ……………………………………………
Administrative and general expenses ……………..
291,000
Income from operations ………………………………………….
EXERCISE 4.6 (Continued)
Other Revenues and Gains
Interest revenue ……………………………………………….
86,000
359,000
Other Expenses and Losses
Loss from earthquake damage ………………………….
150,000
Interest expense ………………………………………………
Income tax ($149,000 X .20) ………………………………
Net income …………………………..…………………………………
Per share of common stock:
EXERCISE 4.7 (30–40 minutes)
(a) Multiple-Step Form
LATIFA SHOE CO.
Income Statement
For the Year Ended December 31, 2020
Net sales ……………………………………………….
$980,000
Cost of goods sold …………………………………
Gross profit on sales ………………………………
484,000
Operating Expenses
Selling expenses
Salaries and wages expense ………..
$114,800
Depreciation exp. (70% X $65,000) ..
45,500
Supplies ……………………………………..
17,600
Administrative expenses
Salaries and wages expense ………..
Depreciation exp. (30% X $65,000) ..
19,500
Income from operations ………………………….
Other Revenues and Gains
Rent revenue …………………………..………..
29,000
128,000
Other Expenses and Losses
Interest expense ……………………………….
18,000
Income before income tax ………………………
110,000
Income tax ………………………………………..
23,100
Net income …………………………………………….
EXERCISE 4.7 (Continued)
(b) Single-Step Form
LATIFA SHOE CO.
Income Statement
For the Year Ended December 31, 2020
Revenues
Net sales ………………………………………………………………
$ 980,000
Rent revenue ………………………………………………………..
29,000
Total revenues …………………………..…………………….
Expenses
Cost of goods sold ………………………………………………..
496,000
Selling expenses(**) ………………………………………………..
177,900
Administrative expenses(***) ……………………………………
207,100
Interest expense ……………………………………………………
18,000
Total expenses ………………………………………………..
899,000
Income before income tax …………………………………………..
110,000
Income tax ……………………………………………………………
23,100
Earnings per share ($86,900 ÷ 20,000) ………………………….
$4.35(*)
*Rounded
(c)
Single-step:
1. Simplicity and conciseness.
2. Probably better understood by users.
EXERCIS 4.7 (Continued)
3. Emphasis on total costs and expenses and net income.
4. Does not imply priority of one revenue or expense over another.
Multiple-step:
1. Provides more information through segregation of operating and
EXERCISE 4.8 (15–20 minutes)
(a) Net sales $ 540,000
Cost of goods sold (210,000)
Administrative expenses (100,000)
(b) Income from continuing operations before income tax $150,000*
Income tax ($150,000 X .20) 30,000
Income from continuing operations 120,000
EXERCISE 4.8 (Continued)
Earnings per share:
Income from continuing operations ($120,000 ÷ 10,000) $12.00
EXERCISE 4.9 (30–35 minutes)
(a) IVAN CALDERON CORP.
Income Statement
For the Year Ended December 31, 2020
Sales Revenue
Net sales ……………………………………………………………
$1,300,000
Cost of goods sold ……………………………………………..
780,000
Gross profit ………………………………………………
520,000
Selling expenses …………………………………………….
Income from operations……………………………………………
407,000
Other Revenues and Gains
Dividend revenue ……………………………………………
20,000
Interest revenue ……………………………………………..
27,000
434,000
Other Expenses and Losses
Casualty loss ………………………………………………….
50,000
Write-off of inventory due to obsolescence …………..
80,000
130,000
Income before income tax ……………………………………………….
304,000
Income tax ($304,000 X .20) ……………………………..
Per share of common stock:
EXERCISE 4.9 (Continued)
(b) IVAN CALDERON CORP.
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained earnings, Jan. 1, as reported ……………………………………….
$ 980,000
(depreciation error) (net of $11,000 tax) …………………………..
Retained earnings, Jan. 1, as adjusted ……………………………………….
Add: Net income …………………………..…………………………………………..
Less: Dividends declared ……………………………………………………….
Correction for overstatement of net income in prior period
EXERCISE 4.10 (20–25 minutes)
Net income ……………………………………………………………………………..
$33,000,000
Less: Provision for preferred dividends
(.08 X $4,500,000) ……………………………………………………….
360,000
Income available to common stockholders …………………………..
Common stock shares ……………………………………………………….
÷10,000,000
Income statement presentation
Per share of common stock:
EXERCISE 4.11 (20–25 minutes)
SPOCK CORPORATION
Income Statement
For the Year Ended December 31, 2020
Net sales(a) ………………………………………………………
$4,162,000
Cost of goods sold(b) ………………………………………..
2,665,000
Gross profit ………………………………………………..
1,497,000
Selling expenses(c) …………………………………………..
$636,000
Administrative expenses(d) ……………………………….
1,127,000
Income from operations ………………………………
Casualty loss …………………………………………………..
Interest expense ………………………………………………
Income tax ($364,000 X .20) …………………………
Earnings per share ($900,000 ÷ $10 par value = 90,000 shares)
Supporting computations
(a) Net sales:
$4,275,000 – $34,000 – $79,000 = $4,162,000
EXERCISE 4.12 (20–25 minutes)
(a) EDDIE ZAMBRANO CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2020
Balance, January 1, as reported ……………………………………….
$225,000*
Correction for depreciation error (net of $5,000 tax) ………….
(20,000)
Balance, January 1, as adjusted……………………………………….
Add: Net income …………………………..…………………………………
Less: Dividends declared ………………………………………………..
Cumulative decrease in income from change in
(b) Total retained earnings would still be reported as $269,000. A restriction
does not affect total retained earnings; it merely labels part of the retained
EXERCISE 4.13 (15–20 minutes)
Net income:
Income from continuing operations
before income tax ……………………………………………………….
$23,650,000
Income tax (17% X $23,650,000) …………………………..
4,020,500
Income from continuing operations …………………………..
Discontinued operations
Loss before income tax…………………………..
Less: Applicable income tax (17%) …………………………..
Preferred dividends declared: …………………………..
$ 1,075,000
Weighted average common shares outstanding…………………………..
4,000,000
Earnings per share
Income from continuing operations …………………………..
Discontinued operations, net of tax …………………………..
EXERCISE 4.14 (15–20 minutes)
(a) 2020
Income before income tax $450,000
(b) Cumulative effect for years prior to 2020.
Year
Weighted-
Average
FIFO
Difference
Tax Rate
(20%)
Net Effect
(c)
2020
2019
2018
Income before income tax
$450,000
$430,000
$395,000
Income tax (20%)
Net income
EXERCISE 4.15 (15–20 minutes)
(a)
ROXANNE CARTER CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2020
Sales revenue …………………………………………………………………
$1,200,000
Cost of goods sold ……………………………………………………….…
Gross profit …………………………..………………………………………..
Selling and administrative expenses ………………………………..
EXERCISE 4.15 (Continued)
(b)
ROXANNE CARTER CORPORATION
Income Statement
For the Year Ended December 31, 2020
Sales ………………………………………………………………………………
$1,200,000
Cost of goods sold …………………………..……………………………..
750,000
Gross profit …………………………………………………………………….
Selling and administrative expenses ………………………………..
320,000
Net income ……………………………………………………….…………….
$ 130,000
EXERCISE 4.16 (15–20 minutes)
C. REITHER CO.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2020
Total
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Common
Stock
Beginning balance
$520,000
$ 90,000
$80,000
$350,000
Net income*
Other comprehensive income
Unrealized holding loss
Dividends
(10,000)
EXERCISE 4.17 (30–35 minutes)
(a) ROLAND CARLSON INC.
Income Statement
For the Year Ended December 31, 2020
Revenues
Sales revenue …………………………..…………………………..
$1,900,000
Rent revenue ……………………………………………………….
40,000
Total revenues ………………………………………………..
$1,940,000
Expenses
Cost of goods sold…………………………………………………..
850,000
Selling expenses ……………………………………………………..
300,000
Administrative expenses …………………………..
240,000
Total expenses ………………………………………………..
Income from operations …………………………..……..
Other revenues and gains
Gain on sale of equipment …………………………..
Other expenses and losses
Inventory loss ………………………………………………..
income tax ……………………………………………………….
585,000
Income tax …………………………………………………….
187,000
Income from continuing operations …………………………
398,000
Discontinued operations
Loss on discontinued operations ……………………
75,000
Less: Applicable income tax reduction ……………
25,500
Per share of common stock:
Income from continuing operations ($398,000 ÷ 100,000)………
Loss on discontinued operations, net of tax …………………….
EXERCISE 4.17 (Continued)
(b) ROLAND CARLSON INC.
Comprehensive Income Statement
For the Year Ended December 31, 2020
Net income ……………………………………………………….……………..
$348,500
Other comprehensive income
Unrealized holding gain, net of tax ………………………………
(c) ROLAND CARLSON INC.
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained earnings, January 1 ………………………………………………….
$600,000
Add: Net income …………………………………………………………………….
Less: Dividends declared ……………………………………………………….
TIME AND PURPOSE OF PROBLEMS
Problem 4.1 (Time 30–35 minutes)
Purpose—to provide the student with an opportunity to prepare a multi-step income statement and a
Problem 4.2 (Time 25–30 minutes)
Problem 4.3 (Time 30–40 minutes)
Purpose—to provide the student with an opportunity to analyze a number of transactions and to prepare a
Problem 4.4 (Time 45–55 minutes)
Purpose—to provide the student with the opportunity to prepare multiple-step and single-step income
statements and a retained earnings statement from the same underlying information. A substantial
Problem 4.5 (Time 20–25 minutes)
Purpose—to provide the student with a problem on the income statement treatment of (1) a change that
Problem 4.6 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare a retained earnings statement. A number
Problem 4.7 (Time 25–35 minutes)
Purpose—to provide the student with a problem to determine the reporting of several items, which may