Exam 4: The Income Statement

Changes in accounting principles generally are reported as

The changes in account balances of the Dunedin Corporation during 2014 are presented below: Assuming there are no changes in retained earnings except for net income and a dividend payment of $19,500,the net income for 2014 should be

Seaworthy Company's gross sales in 2014 were $3,930,000.Assuming sales returns and allowances were $74,000,sales discounts were $35,000,and freight-out was $28,000,what were Seaworthy's net sales in 2014?

Jonathan L.Supreme Company has two divisions,A and B.The operations and cash flows of these two divisions are clearly distinguishable.On July 1,2015,the company decided to dispose of the assets and liabilities of Division B.It is probable that the disposal will be completed early next year.The revenues and expenses of Jonathan L.Supreme Company for 2015 and for the preceding two years are as follows: During the latter part of 2015,Jonathan L.Supreme disposed of a portion of Division B and recognized a pretax loss of $8,000 on the disposal.The income tax rate for Jonathan L.Supreme Company is 40%. Prepare the comparative income statements for Jonathan L.Supreme Company for the years 2013,2014,and 2015.

The following data are available for Synopsis Products,a partnership: Compute the purchases and the net income for the partnership for 2013,2014,and 2015,assuming that the firm sells its merchandise at 25 percent above cost.

Which of the following would NOT be reflected in the income statement?

Which of the following most likely would be considered a discontinued operation?

Harris Company reported the following results from operations for 2014: Income before extraordinary items was

Ladrillo Enterprises,Inc.,has two operating divisions,one manufactures farm machinery and the other manufactures office furniture.Both divisions are considered separate components as defined by SFAS No.144.The management of Ladrillo Enterprises wants to focus on the manufacturing of farm machinery and accordingly adopted a formal plan to sell the office furniture division on September 20,2014.The sale was completed on March 10,2015.At December 31,2014,the office furniture component was considered as held for sale. On December 31,2014,the company's fiscal year-end,the book value of the assets of the office furniture division was $1,000,000.On that date,the fair value of the assets,less costs to sell,was $900,000.The before-tax operating loss of the division for the year was $130,000.The company's tax rate is 40%.The after-tax income from continuing operations for 2014 was $350,000. Prepare a partial income statement for 2014 beginning with income from continuing operations.Ignore EPS disclosures.

Which of the following is correct?

Funnies-R-Us,Inc.committed to sell its comic book division (a component of the business)on September 1,2014.The book value of the division's net assets was $400,000 and the fair value of the net assets was $350,000.The disposal date is expected to be June 1,2015.The division reported a net loss of $15,000 for the year ended December 31,2014.Ignoring taxes,choose the correct reporting for discontinued operations in the income statement of Funnies-R-Us,Inc.,for the year ended December 31,2014.

Soluble Water Products had sales during 2014 of $895,000.Soluble's gross profit percentage is 55 percent.Purchases of inventory during 2014 totaled $466,250 and a count of inventory on hand at the end of the year totaled $189,500.Selling expenses are 18 percent of sales and general and administrative expenses are equal to 80 percent of selling expenses.Soluble's income tax rate is 30 percent and the company has 60,000 shares of common stock outstanding. Prepare an income statement,including earnings per share data,for the year ended December 31,2014.

A significant part of the compensation received by the leaders of large business entities comes from company-sponsored bonus plans.Determination of the amount of compensation to be awarded under many of these bonus plans is based on net income or some variant of net income. Bonus plans typically provide for a target earnings number that must be achieved in order for bonuses to be paid.This target amount of earnings usually is a percentage either of shareholders' equity or total assets.If earnings fall below the target,then no bonuses are awarded.A bonus plan may also provide for a maximum amount of earnings above which no bonus will be paid. Accounting research suggests that managers of firms with bonus plans are more likely to choose accounting procedures that shift reported earnings from future periods to the current period.In light of this finding,consider how managers might behave given the following situations: 1.Earnings are far below the target level for the bonus. 2.Earnings are just slightly below the target level for the bonus. 3.Earnings are above the upper limit provided by the bonus plan; no bonus would be paid beyond this upper limit. Required: Describe what you believe would be the likely behavior of managers under each of the three situations described above.

All of the following would appear on a single-step income statement except

A company that changes from the declining-balance method of depreciation for previously recorded assets to the straight-line method should report the change as a(n)

Amityville Company has two divisions,C and D.The operations and cash flows of these two divisions are clearly distinguishable.On July 1,2015,the company decided to dispose of the assets and liabilities of Division D.It is probable that the disposal will be completed early next year.The revenues and expenses of Amityville Company for 2015 and for the preceding two years are as follows: During the latter part of 2015,Amityville disposed of a portion of Division D and recognized a pretax loss of $10,000 on the disposal.The income tax rate for Amityville Company is 40%. Prepare the comparative income statements for Amityville Company for the years 2013,2014,and 2015.

Barrister Corporation separates operating expenses in two categories: (1)selling,and (2)general and administrative.The adjusted trial balance at December 31,2014,included the following expenses and loss accounts: One-half of the rented premises is occupied by the sales department.Barrister's total selling expenses for 2014 are

Apollo Company incurred the following infrequent losses during 2014: •A loss of $550,000 on disposal of two of three similar manufacturing plants; company continues to operate the third plant. •A loss of $150,000 from a write-down of inventories to market. •Shutdown losses from a major strike at one of Apollo's plants totaled $340,000. •A loss of $140,000 due to early extinguishment of long-term debt. In its 2014 income statement how much should Apollo report as total infrequent losses that are not considered extraordinary?

On June 30,2014,Sonata Company's operating facilities in Nebraska were destroyed by a flood.The loss of $700,000 was not covered by insurance.Sonata's tax rate for 2014 is 40 percent.In Sonata's income statement for the year ended September 30,2014,this event should be reported as an extraordinary loss of

Sovereign Enterprises,Inc.,has two operating divisions,one manufactures machinery and the other is a trucking operation that has been used to ship finished product for the manufacturing operation.Both divisions are considered separate components as defined by SFAS No.144.The management of Sovereign Enterprises wants to focus on the manufacturing operation and accordingly adopted a formal plan to sell the trucking division on November 15,2014.The sale was completed on April 30,2015.At December 31,2014,the trucking component was considered as held for sale. On December 31,2014,the company's fiscal year-end,the book value of the assets of the trucking division was $250,000.On that date,the fair value of the assets,less costs to sell,was $200,000.The before-tax operating loss of the division for the year was $140,000.The company's tax rate is 40%.The after-tax income from continuing operations for 2014 was $400,000. Prepare a partial income statement for 2014 beginning with income from continuing operations.Ignore EPS disclosures.