During 2014, Liselotte Company earned income of $1,500,000 before income taxes and realized a gain of $450,000 on a government-forced condemnation sale of a division plant facility. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%. Proper accounting suggests that the unusual gain be reported as an extraordinary item. Illustrate an appropriate presentation of these items in the income statement.
> Simpson Corp. is an entertainment firm that derives approximately 30% of its income from the Casino Knights Division, which manages gambling facilities. As auditor for Simpson Corp., you have recently overheard the following discussion between the cont
> Charlie Brown, controller for Kelly Corporation, is preparing the company’s income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipm
> Bobek Inc. has recently reported steadily increasing income. The company reported income of $20,000 in 2011, $25,000 in 2012, and $30,000 in 2013. A number of market analysts have recommended that investors buy the stock because they expect the steady
> What is earnings management?
> Wade Corp. has 150,000 shares of common stock outstanding. In 2014, the company reports income from continuing operations before income tax of $1,210,000. Additional transactions not considered in the $1,210,000 are as follows. 1. In 2014, Wade Corp.
> Below is the Retained Earnings account for the year 2014 for Acadian Corp. Instructions (a) Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2014 to
> Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2014. Additional facts are as follows. 1. “Selling, general, and administrative expenses” for 2014 included a charge of $8,500,000
> The following account balances were included in the trial balance of Twain Corporation at June 30, 2014. The Retained Earnings account had a balance of $337,000 at July 1, 2013. There are 80,000 shares of common stock outstanding. Instruction
> Maher Inc. reported income from continuing operations before taxes during 2014 of $790,000. Additional transactions occurring in 2014 but not considered in the $790,000 are as follows. 1. The corporation experienced an uninsured flood loss (extraordinary
> The following information is related to Dickinson Company for 2014. Dickinson Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations t
> C. Reither Co. reports the following information for 2014: sales revenue $700,000; cost of goods sold $500,000; operating expenses $80,000; and an unrealized holding loss on available-for-sale securities for 2014 of $60,000. It declared and paid a cash
> Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?
> Roxanne Carter Corporation reported the following for 2014: net sales $1,200,000; cost of goods sold $750,000; selling and administrative expenses $320,000; and an unrealized holding gain on available-for-sale securities $18,000. Instructions Prepare
> Tim Mattke Company began operations in 2012 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2014, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is
> At December 31, 2013, Shiga Naoya Corporation had the following stock outstanding. During 2014, Shiga Naoya did not issue any additional common stock. The following also occurred during 2014. Instructions Compute earnings per share data as
> Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows. The following information relates to 2014. Instructions (a) Prepare a 20
> The stockholders’ equity section of Tkachuk Corporation appears below as of December 31, 2014. Net income for 2014 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a resul
> Presented below is information related to Ivan Calderon Corp. for the year 2014. Instructions (a) Prepare a multiple-step income statement for 2014. Assume that 60,000 shares of common stock are outstanding. (b) Prepare a separate retained earni
> Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2014. Instructions (a) Compute net income for 2014. (b) Prepare a partial income statement beginning with income from continuing operations before income tax,
> The accountant of Latifa Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2014. There were 20,000 shares of common stock outstanding during the
> The following balances were taken from the books of Maria Conchita Alonzo Corp. on December 31, 2014. Assume the total effective tax rate on all items is 34%. Instructions Prepare a multiple-step income statement; 100,000 shares of common stock
> Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.
> Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omi
> The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $92,000 and decre
> Presented below are certain account balances of Paczki Products Co. Instructions From the foregoing, compute the following: (a) Total net revenue, (b) Net income, (c) Dividends declared, and (d) Income attributable to controlling stockholders
> Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Instructions Compute the following: (a) Income from operations, (b) Net income, (c) Net income attributable to Viel Company&r
> Presented below are changes in all the account balances of Fritz Reiner Furniture Co. during the current year, except for retained earnings. Instructions Compute the net income for the current year, assuming that there were no entries in the Reta
> On January 1, 2014, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2014, it purchased for cash $20,000 of equity securities that it classified as available-
> Portman Corporation has retained earnings of $675,000 at January 1, 2014. Net income during 2014 was $1,400,000, and cash dividends declared and paid during 2014 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 201
> Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2014. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2011.
> In 2014, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2014, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2014 earnings per share.
> During 2014, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2013 and 2012 (Williamson’s first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-avera
> Identify at least two situations in which important changes in value are not reported in the income statement.
> Stacy Corporation had income before income taxes for 2014 of $6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation’s tax rate is 30%. Prepare a partial income statement fo
> Finley Corporation had income from continuing operations of $10,600,000 in 2014. During 2014, it disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2014.
> Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation. In BE-4-2 Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of g
> Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of goods sold $1,450,000; administrative expenses $212,000; selling expenses$280,000; and interest expense $45,000. Brisky’s t
> Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Prepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.
> How should the disposal of a component of a business be disclosed in the income statement?
> What is meant by the terms elements and items as they relate to the income statement? Why might items have to be disclosed in the income statement?
> State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.
> Generally accepted accounting principles usually require the use of accrual accounting to “fairly present” income. If the cash receipts and disbursements method of accounting will “clearly reflect” taxable income, why does this
> Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Di
> How can information based on past transactions be used to predict future cash flows?
> On January 30, 2013, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2014, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should
> When does tax allocation within a period become necessary? How should this allocation be handled?
> What is meant by “tax allocation within a period”? What is the justification for such practice?
> Qualls Corporation reported 2014 earnings per share of $7.21. In 2015, Qualls reported earnings per share as follows. Is the increase in earnings per share from $7.21 to $8.28 a favorable trend?
> Neumann Company computed earnings per share as follows. Net income / Common shared controlling at year-end Neumann has a simple capital structure. What possible errors might the company have made in the computation? Explain.
> What effect does intraperiod tax allocation have on reported net income?
> Lebron Co. owns most but not all of the shares of its subsidiary Bryant Inc. Lebron reported net income of $124,700. The amount to be attributed to the non-controlling interest in Bryant is $30,000. Indicate how Lebron will report the non-controlling i
> Discuss the appropriate treatment in the income statement for the following items: (a) Loss on discontinued operations. (b) Noncontrolling interest allocation. (c) Earnings per share. (d) Gain on sale of equipment.
> Cooper Investments reported an unusual gain from the sale of certain assets in its 2014 income statement. How does intraperiod tax allocation affect the reporting of this unusual gain?
> What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?
> Santo Corporation has eight expense accounts in its general ledger which could be classified as selling expenses. Should Santo report these eight expenses separately in its income statement or simply report one total amount for selling expenses?
> Perlman Land Development, Inc. purchased land for $70,000 and spent $30,000 developing it. It then sold the land for $160,000. Sheehan Manufacturing purchased land for a future plant site for $100,000. Due to a change in plans, Sheehan later sold the l
> Indicate the section of a multiple-step income statement in which each of the following is shown. (a) Loss on inventory write-down. (b) Loss from strike. (c) Bad debt expense. (d) Loss on disposal of a component of the business. (e) Gain on sale o
> Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2014. (a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional de
> Discuss the appropriate treatment in the financial statements of each of the following. (a) An amount of $113,000 realized in excess of the cash surrender value of an insurance policy on the life of one of the founders of the company who died during t
> Distinguish between the modified all-inclusive income statement and the current operating performance income statement. According to present generally accepted accounting principles, which is recommended? Explain.
> What is the basis for distinguishing between operating and non-operating items?
> Mason Advertising Agency was founded in January 2010. Presented below are adjusted and unadjusted trial balances as of December 31, 2014. Instructions (a) Journalize the annual adjusting entries that were made. (Omit explanations.) (b) Prepare a
> Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September. Sept. 1 Kawabata begins practice as a dentist and invests $20,000 cash. 2 Purchases dental equipment on account from Green Jacket Co. for $17,280. 4 Pays ren
> Scratch Miniature Golf and Driving Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March. Mar. 1 Invested $50,000 cash in the business in exchange for common stock. 3 Purchased Michel
> What are the advantages and disadvantages of the single step income statement?
> Presented below are selected account balances for Homer Winslow Co. as of December 31, 2014. Instructions Prepare closing entries for Homer Winslow Co. on December 31, 2014. (Omit explanations.)
> Presented below is financial information for two different companies. Instructions Instructions Compute the missing amounts.
> Presented below is information related to Gonzales Corporation for the month of January 2014. Instructions Prepare the necessary closing entries.
> The adjusted trial balance of Lopez Company shows the following data pertaining to sales at the end of its fiscal year, October 31, 2014: Sales Revenue $800,000, Delivery Expense $12,000, Sales Returns and Allowances $24,000, and Sales Discounts $15,00
> The adjusted trial balance of Anderson Cooper Co. as of December 31, 2014, contains the following. Instructions (a) Prepare an income statement. (b) Prepare a statement of retained earnings. (c) Prepare a classified balance sheet.
> Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows. Other data: 1. The balance in prepaid insurance is a one-year premium paid on June 1, 2014. 2. An inventory count on Augus
> Andy Roddick is the new owner of Ace Computer Services. At the end of August 2014, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incur
> Presented below are selected accounts for Alvarez Company as reported in the worksheet at the end of May 2014. Instructions Complete the worksheet by extending amounts reported in the adjusted trial balance to the appropriate columns in the works
> What is the major distinction (a) between revenues and gains and (b) between expenses and losses?
> A partial adjusted trial balance of Piper Company at January 31, 2014, shows the following. Instructions Answer the following questions, assuming the year begins January 1. (a) If the amount in Supplies Expense is the January 31 adjusting entry,
> Karen Weller, D.D.S., opened a dental practice on January 1, 2014. During the first month of operations, the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was pe
> The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. An analysis of the accounts shows the following. 1. The equipment depreciates $250 per month.
> The trial balance of Watteau Co. (shown on the next page) does not balance. Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors. 1. Cash received f
> The trial balance of Blues Traveler Corporation does not balance. An examination of the ledger shows these errors. 1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830. 2. The purchase on a
> The trial balance of Wanda Landowska Company (shown on the next page) does not balance. Your review of the ledger reveals the following.(a) Each account had a normal balance.(b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Ta
> Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred. April 2 Invested $32,000 cash and equipment valued at $14,000 in the business. 2 Hired a
> Assume that Best Buy made a December 31 adjusting entry to debit Salaries and Wages Expense and credit Salaries and Wages Payable for $4,200 for one of its departments. On January 2, Best Buy paid the weekly payroll of $7,000. Prepare Best Buy’s
> Kelly Company had cash receipts from customers in 2014 of $142,000. Cash payments for operating expenses were $97,000. Kelly has determined that at January 1, accounts receivable was $13,000, and prepaid expenses were $17,500. At December 31, accounts
> Side Kicks has year-end account balances of Sales Revenue $808,900; Interest Revenue $13,500; Cost of Goods Sold $556,200; Administrative Expenses $189,000; Income Tax Expense $35,100; and Dividends $18,900. Prepare the year-end closing entries.
> A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue on future upgrades to its products. Some contend that Apple’s quality of earnings is low. What do
> Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.
> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand-Spencer-Annual-report-and-financial-statements-2012.p
> Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting m
> What are the steps to be completed in preparing the opening IFRS statement of financial position?
> What are the characteristics of high-quality information in a company’s first IFRS financial statements?
> Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below. Instructions(a) Prepare a complete worksheet.(b) Prepare a classified balance sheet. (Note: $10,000 of the mortgage payable is d
> Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2014, Dr. Accardo collected $142,600 from her patients and paid $55,470 in expenses. At January 1, 2014, and December 31, 2014, she had accounts receivable, un
> The Kellys are planning for a retirement home. They estimate they will need $200,000 4 years from now to purchase this home. Assuming an interest rate of 10%, what amount must be deposited at the end of each of the 4 years to fund the home price? (Round
> Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition of present value? (b) Briefly describe the term “discount rate adjustment technique.” (c) Identify the other codification referen
> Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building
> James Kirk is a financial executive with McDowell Enterprises.Although James Kirk has not had any formal training in finance or accounting, he has a “good sense” for numbers and has helped the company grow from a very small company ($500,000
> Will Smith will receive $80,000 on December 31, 2019 (5 years from now), from a trust fund established by his father. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount today?
> Ellison Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The
> Answer the following questions related to Dubois Inc. (a) Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the oth
> During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.The vineyard will bear no grapes for