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EXERCISE 4.7 (30–40 minutes)
(a) WEATHERSPOON SHOE
Statement of Comprehensive Income
For the Year Ended December 31, 2019
Net sales ...........................................................
£980,000
Cost of goods sold ..........................................
516,000
Gross profit ......................................................
464,000
EXERCISE 4.7 (Continued)
(b) WEATHERSPOON SHOE
Income Statement
For the Year Ended December 31, 2019
Net sales ............................................................
£980,000
Cost of goods sold ...........................................
516,000
Other income and expense
Rent revenue ...............................................
29,000
WEATHERSPOON SHOE
Comprehensive Income Statement
For the Year Ended December 31, 2019
Net income ........................................................
£108,400
Other comprehensive income
EXERCISE 4.8 (15–20 minutes)
(a) Net sales ....................................................................... € 540,000
Less: Cost of goods sold ............................................ (260,000)
(b) Income before income tax ........................................... €100,000*
Income tax (€100,000 X .30) ......................................... 30,000
Income from continuing operations............................ 70,000
Discontinued operations, less applicable
EXERCISE 4.9 (30–35 minutes)
(a) TAO LTD
Income Statement
For the Year Ended December 31, 2019
Sales
Net sales ................................................................
HK$1,200,000
Cost of goods sold ...................................................
780,000
Gross profit ....................................................
420,000
Selling expenses .......................................................
HK$65,000
Administrative expenses ................................
48,000
113,000
Other income and expense
Dividend revenue ........................................................
20,000
EXERCISE 4.9 (Continued)
(b) TAO LTD
Retained Earnings Statement
For the Year Ended December 31, 2019
Retained earnings, Jan. 1, as reported ................................
HK$ 980,000
Correction for overstatement of net income in prior
EXERCISE 4.10 (20–25 minutes)
Computation of net income:
2019 net income after tax ................................
R$33,000,000
2019 net income before tax
EXERCISE 4.10 (Continued)
Net income ...................................................................................
R$33,000,000
Less: Provision for preference dividends
Income statement presentation
Earnings per share:
Income from continuing operations ................................
R$4.23a
EXERCISE 4.11 (20–25 minutes)
WOODS CORPORATION
Income Statement
For the Year Ended December 31, 2019
Net sales(a) ...............................................................
$4,062,000
Cost of goods sold(b) ...............................................
2,665,000
Gross profit ........................................................
1,397,000
Selling expenses(c) ..................................................
$636,000
Administrative expenses(d) .....................................
491,000
1,127,000
Other income and expense
Earnings per share
($900,000 ÷ $10 par value = 90,000 shares)
Income from continuing operations ($233,800 ÷ 90,000) ......
$2.60*
Discontinued operations, net of tax .......................................
(0.47)*
Net income ...............................................................................
$2.13
*Rounded
Supporting computations
(a) Net sales:
EXERCISE 4.11 (Continued)
(c) Selling expenses:
EXERCISE 4.12 (20–25 minutes)
(a) McENTIRE CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2019
Balance, January 1, as reported ..............................................
$225,000*
Correction for depreciation error (net of $5,000 tax) .............
(20,000)
(b) Total retained earnings would still be reported as $245,000. A restriction
does not affect total retained earnings; it merely labels part of the retained
earnings as being unavailable for dividend distribution. Retained earnings
would be reported as follows:
Retained earnings:
EXERCISE 4.13 (15–20 minutes)
Net income:
Income before income tax ................................
€21,650,000
Income tax (35% X €21,650,000) ................................
7,577,500
Preference dividends declared: ................................
€ 860,000
Weighted average shares outstanding ................................
4,000,000
Earnings per share
Income from continuing operations ................................
€3.30*
EXERCISE 4.14 (15–20 minutes)
(a) 2019
Income before income tax ............................... $460,000
(b) Cumulative effect for years prior to 2019:
Year
Weighted
Average
FIFO
Difference
Tax Rate
(35%)
Net Effect
(c)
2019
2018
2017
Income before income tax
$460,000
$420,000
$395,000
EXERCISE 4.15 (15–20 minutes)
GAERTNER AG
Income Statement
For the Year Ended December 31, 2019
Sales ..........................................................................................
€1,200,000
Net income ................................................................................
€ 160,000
Comprehensive Income Statement
Net income ................................................................................
€ 160,000
EXERCISE 4.16 (15–20 minutes)
BRYANT PLC
Statement of Changes in Equity
For the Year Ended December 31, 2019
Share Capital—
Ordinary
Retained
Earnings
Accumulated
other
Comprehensive
Income
Total
Equity
Beginning balance
£350,000
£ 90,000
£80,000
£520,000
Total comprehensive
income
170,000*
170,000
EXERCISE 4.17 (30–35 minutes)
(a) VEGA SA
Statement of Comprehensive Income
For the Year Ended December 31, 2019
Sales ............................................................................................
R$1,700,000
Cost of goods sold ................................................................
850,000
EXERCISE 4.17 (Continued)
Income before income tax .............................................
385,000
Income tax ................................................................
119,000
Income from continuing operations .............................
266,000
Discontinued operations
Earnings per share:
Income from continuing operations
(b) VEGA SA
Retained Earnings Statement
For the Year Ended December 31, 2019
Retained earnings, January 1 .........................................................
R$600,000
Add: Net income ................................................................
216,500
816,500
EXERCISE 4.18 (10–15 minutes)
HASBRO INC.
Statement of Changes in Equity
For the Year Ended December 31, 2019
Share
Capital—
Ordinary
Retained Earnings
Accumulated
other
Comprehensive
Income
Total Equity
Beginning
balance
$300,000
$20,000
$50,000
$370,000
Capital shares
30,000
30,000
Total
TIME AND PURPOSE OF PROBLEMS
Problem 4.1 (Time 5–10 minutes)
Purpose––to provide the student with an opportunity to indicate where various transactions would be
reported on the Statement of Comprehensive Income or the Statement of Retained Earnings.
Problem 4.2 (Time 30–35 minutes)
Problem 4.3 (Time 25–30 minutes)
Problem 4.4 (Time 30–40 minutes)
Problem 4.5 (Time 30–40 minutes)
Purpose—to provide the student with the opportunity to prepare an income statement and a retained
earnings statement from the same underlying information. A substantial number of operating expenses
must be reported in this problem unlike Problem 4.1. As a consequence, the problem is time-consuming.
Problem 4.6 (Time 20–25 minutes)
Purpose—to provide the student with a problem on the income statement treatment of (1) an
Problem 4.7 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare a retained earnings statement. A number
Problem 4.8 (Time 25–35 minutes)
SOLUTIONS TO PROBLEMS
PROBLEM 4.1
1. E
2. C
PROBLEM 4.2
DICKINSON AG
Income Statement
For the Year Ended December 31, 2019
Sales .................................................................................
€25,000,000
Cost of goods sold ..........................................................
16,000,000
Gross profit ................................................................
9,000,000
Selling and administrative expenses .............................
4,700,000
Income before income tax ..............................................
3,130,000
Income tax ................................................................
1,244,000
Income from continuing operations ...............................
1,886,000
Discontinued operations
PROBLEM 4.2 (Continued)
Earnings per share:
Income from continuing operations ....................
€3.61a
Discontinued operations
Loss on operations, net of tax ....................
€(0.18)
DICKINSON AG
Retained Earnings Statement
For the Year Ended December 31, 2019
Retained earnings, January 1 ................................
€ 980,000
Add: Net income ..................................................
1,356,000
2,336,000
PROBLEM 4.3
THOMPSON LTD
Income Statement
For the Year Ended December 31, 2019
Net sales (£1,100,000 – £14,500 – £17,500) ..............
£1,068,000
Cost of goods sold* ..................................................
645,000
Gross profit ...............................................................
423,000
Selling expenses .......................................................
£232,000
*Cost of goods sold: Can be verified as follows:
Merchandise inventory, Jan. 1 ................................
£ 89,000
Purchases ................................................................
£610,000
PROBLEM 4.3 (Continued)
THOMPSON LTD
Retained Earnings Statement
For the Year Ended December 31, 2019
Retained earnings, January 1 ................................................
£160,000
Add: Net income ................................................................
86,100
PROBLEM 4.4
MAHER AG
Income Statement (Partial)
For the Year Ended December 31, 2019
Income before income tax ............................................
€748,500(a)
Income tax (€748,500 X .30) ................................
224,550
Earnings per share:
Income from continuing operations ..................
€4.37*
