Free Trial

Safari Books Online is a digital library providing on-demand subscription access to thousands of learning resources.

  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint


E4-1 (Computation of Net Income) Presented below are changes in all the account balances of Jackson Furniture Co. during the current year, except for retained earnings.


Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $24,000 which was paid in the current year.

E4-2 (Income Statement Items) Presented below are certain account balances of Wade Products Co.

Rental revenue$6,500Sales discounts$ 7,800
Interest expense12,700Selling expenses99,400
Beginning retained earnings114,400Sales400,000
Ending retained earnings134,000Income tax26,600
Dividend revenue71,000Cost of goods sold184,400
Sales returns12,400Administrative expenses82,500


From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared during the current year.

E4-3 (Single-step Income Statement) The financial records of Dunbar Inc. were destroyed by fire at the end of 2010. Fortunately the controller had kept certain statistical data related to the income statement as presented below.

  1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year.

  2. Sales discounts amount to $17,000.

  3. 30,000 shares of common stock were outstanding for the entire year.

  4. Interest expense was $20,000.

  5. The income tax rate is 30%.

  6. Cost of goods sold amounts to $500,000.

  7. Administrative expenses are 18% of cost of goods sold but only 8% of gross sales.

  8. Four-fifths of the operating expenses relate to sales activities.


From the foregoing information prepare an income statement for the year 2010 in single-step form.

E4-4 (Multiple-step and Single-step) Two accountants for the firm of Allen 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 2010 information related to Webster Company ($000 omitted).


  1. Prepare an income statement for the year 2010 using the multiple-step form. Common shares outstanding for 2010 total 40,550 (000 omitted).

  2. Prepare an income statement for the year 2010 using the single-step form.

  3. Which one do you prefer? Discuss.

E4-5 (Multiple-step and Extraordinary Items) The following balances were taken from the books of Parnevik Corp. on December 31, 2010.

Assume the total effective tax rate on all items is 34%.


Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

E4-6 (Multiple-step and Single-step) The accountant of Weatherspoon 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, 2010.

Rental revenue$ 29,000
Interest expense18,000
Market appreciation on land above cost31,000
Wages and salaries—sales114,800
Materials and supplies—sales17,600
Income tax30,600
Wages and salaries—administrative135,900
Other administrative expenses51,700
Cost of goods sold516,000
Net sales980,000
Depreciation on plant assets (70% selling, 30% administrative)65,000
Cash dividends declared16,000

There were 20,000 shares of common stock outstanding during the year.


  1. Prepare a multiple-step income statement.

  2. Prepare a single-step income statement.

  3. Which format do you prefer? Discuss.

E4-7 (Income Statement, EPS) Presented below are selected ledger accounts of McGraw Corporation as of December 31, 2010.

Cash$ 50,000
Administrative expenses100,000
Selling expenses80,000
Net sales540,000
Cost of goods sold260,000
Cash dividends declared (2010)20,000
Cash dividends paid (2010)15,000
Discontinued operations (loss before income taxes)40,000
Depreciation expense, not recorded in 200930,000
Retained earnings, December 31, 200990,000
Effective tax rate 30% 


  1. Compute net income for 2010.

  2. Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 20,000 shares of common stock were outstanding during 2010.

E4-8 (Multiple-step Statement with Retained Earnings) Presented below is information related to Brokaw Corp. for the year 2010.

Net sales$1,200,000Write-off of inventory due to obsolescence$ 80,000
Cost of goods sold780,000Depreciation expense omitted by accident in 200940,000
Selling expenses65,000Casualty loss (extraordinary item) before taxes50,000
Administrative expenses48,000Cash dividends declared45,000
Dividend revenue20,000Retained earnings at December 31, 2009980,000
Interest revenue7,000Effective tax rate of 34% on all items 


  1. Prepare a multiple-step income statement for 2010. Assume that 60,000 shares of common stock are outstanding.

  2. Prepare a retained earnings statement for 2010.

E4-9 (Earnings Per Share) The stockholders' equity section of Sosa Corporation appears below as of December 31, 2010.

Net income for 2010 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $12,000,000 (before tax) as a result of a major casualty, which should be classified as an extraordinary item. Preferred stock dividends of $270,000 were declared and paid in 2010. Dividends of $1,000,000 were declared and paid to common stockholders in 2010.


Compute earnings per share data as it should appear on the income statement of Sosa Corporation.

E4-10 (Condensed Income Statement—Periodic Inventory Method) Presented below are selected ledger accounts of Woods Corporation at December 31, 2010.

Cash$ 185,000Sales salaries$284,000
Merchandise inventory535,000Office salaries346,000
Sales4,175,000Purchase returns15,000
Advances from customers117,000Sales returns79,000
Sales discounts34,000Accounts receivable142,500
Purchase discounts27,000Sales commissions83,000
Travel and entertainment—sales69,000Telephone—sales17,000
Accounting and legal services33,000Utilities—office32,000
Insurance expense—office24,000Miscellaneous office expenses8,000
Advertising54,000Rental revenue240,000
Transportation-out93,000Extraordinary loss (before tax)60,000
Depreciation of office equipment48,000Interest expense176,000
Depreciation of sales equipment36,000Common stock ($10 par)900,000

Woods's effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is $686,000.


Prepare a condensed 2010 income statement for Woods Corporation.

E4-11 (Retained Earnings Statement) McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.

 Net incomeDividends declared
2007$ 40,000$ –0–

The following information relates to 2010.

Income before income tax$220,000
Prior period adjustment: understatement of 2008 depreciation expense (before taxes)$25,000
Cumulative decrease in income from change in inventory methods (before taxes)$45,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2011)$100,000
Effective tax rate40%


  1. Prepare a 2010 retained earnings statement for McEntire Corporation.

  2. Assume McEntire Corp. restricted retained earnings in the amount of $70,000 on December 31, 2010. After this action, what would McEntire report as total retained earnings in its December 31, 2010, balance sheet?

E4-12 (Earnings per Share) At December 31, 2009, Schroeder Corporation had the following stock outstanding.

8% cumulative preferred stock, $100 par, 107,500 shares$10,750,000
Common stock, $5 par, 4,000,000 shares20,000,000

During 2010, Schroeder did not issue any additional common stock. The following also occurred during 2010.

Income from continuing operations before taxes$21,650,000
Discontinued operations (loss before taxes)3,225,000
Preferred dividends declared860,000
Common dividends declared2,200,000
Effective tax rate35%


Compute earnings per share data as it should appear in the 2010 income statement of Schroeder Corporation. (Round to two decimal places.)

E4-13 (Change in Accounting Principle) Zehms Company began operations in 2008 and adopted weighted-average pricing for inventory. In 2010, in accordance with other companies in its industry, Zehms changed its inventory pricing to FIFO. The pretax income data is reported below.



  1. What is Zehms's net income in 2010? Assume a 35% tax rate in all years.

  2. Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

  3. Show comparative income statements for Zehms Company, beginning with income before income tax, as presented on the 2010 income statement.

E4-14 (Comprehensive Income) Armstrong Corporation reported the following for 2010: net sales $1,200,000; cost of goods sold $720,000; selling and administrative expenses $320,000; and an unrealized holding gain on available-for-sale securities $15,000.


Prepare a statement of comprehensive income, using the two-income statement format. Ignore income taxes and earnings per share.

E4-15 (Comprehensive Income) Bryant Co. reports the following information for 2010: sales revenue $750,000; cost of goods sold $500,000; operating expenses $80,000; and an unrealized holding loss on available-for-sale securities for 2010 of $50,000. It declared and paid a cash dividend of $10,000 in 2010.

Bryant Co. has January 1, 2010, balances in common stock $350,000; accumulated other comprehensive income $80,000; and retained earnings $90,000. It issued no stock during 2010.


Prepare a statement of stockholders' equity.

E4-16 (Various Reporting Formats) The following information was taken from the records of Gibson Inc. for the year 2010. Income tax applicable to income from continuing operations $119,000; income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on available-for-sale securities $15,000.

Extraordinary gain$ 95,000Cash dividends declared$ 150,000
Loss on discontinued operations75,000Retained earnings January 1, 2010600,000
Administrative expenses240,000Cost of goods sold850,000
Rent revenue40,000Selling expenses300,000
Extraordinary loss60,000Sales1,700,000

Shares outstanding during 2010 were 100,000.


  1. Prepare a single-step income statement for 2010.

  2. Prepare a retained earnings statement for 2010.

  3. Show how comprehensive income is reported using the second income statement format.

See the book's companion website,, for a set of B Exercises.


You are currently reading a PREVIEW of this book.


Get instant access to over $1 million worth of books and videos.


Start a Free Trial

  • Safari Books Online
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint