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Chapter 4: 1E (page 182)

Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.

Increase Increase

(Decrease) (Decrease)

Cash \(79,000 Accounts Payable

Accounts Receivable (net) \)45,000 Bonds Payable \(82,000

Inventory \)127,000 Common Stock \(125,000

Investments (47,000) Paid-In Capital in Excess of Par \)13,000

Instructions

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 $19,000 which was paid in the current year.

Short Answer

Expert verified

The Net Income of Fritz Mayhew Furniture Co. for the current year is $54,000.

Step by step solution

01

Meaning of Inventory

Inventory refers to the goods used for production during the regular course of business. Raw materials, work-in-progress, and finished goods are the general categories of inventory.

02

Calculation of Net Income

Particulars

Amount ($)

Increase in Cash

$79,000

Add: Decrease in Accounts Payable

$51,000

Add: Increase in Accounts Receivables

$45,000

Less: Increase in Bonds Payable

($82,000)

Add: Increase in Inventory

$127,000

Less: Increase in Common Stock

($125,000)

Less: Decrease in investments

($47,000)

Less: Increase in paid-in-capital

($13,000)

Add: Dividend Declared

$19,000

Net Income

$54,000

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Most popular questions from this chapter

(Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2017.

Rent revenue \(29,000

Interest expense 18,000

Market appreciation on land above cost 31,000

Salaries and wages expense (selling) 114,800

Supplies (selling) 17,600

Income tax 37,400

Salaries and wages expense (administrative) \)135,900

Other administrative expenses 51,700

Cost of goods sold 496,000

Net sales 980,000

Depreciation on plant assets (70% selling, 30% administrative) 65,000

Cash dividends declared 16,000

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

Instructions

  1. Prepare a multiple-step income statement.
  2. Prepare a single-step income statement.
  3. (c) Which format do you prefer? Discuss.

During 2017, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2016 and 2015 (Williamson’s first year of operations) under FIFO was \(160,000 and \)180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been \(145,000 in 2016 and \)170,000 in 2015. In 2017, Williamson reported a pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson, beginning with “Income before income tax,” as presented on the 2017 income statement. (The tax rate in all years is 30%.)

Counting Crows Inc. provided the following information for the year 2017.

Retained earnings, January 1, 2017 $600,000

Administrative expenses 240,000

Selling expenses 300,000

Sales revenue 1,900,000

Cash dividends declared 80,000

Cost of goods sold 850,000

Loss on discontinued operations 110,000

Rent revenue 102,700

17,000

Income tax applicable to continuing operations 187,000

Income tax benefit applicable to loss

on discontinued operations 60,500

Income tax applicable to unrealized holding

gain on available-for-sale securities 2,000

Accounting

Prepare

(a) a single-step income statement for 2017,

(b) a retained earnings statement for 2017, and

(c) a statement of comprehensive income using the two statement format. The shares outstanding during 2017 were 100,000.

Analysis

Explain how a multiple-step income statement format can provide useful information to a financial statement user.

Principles

In a recent meeting with its auditor, Counting Crows’ management argued that the company should be able to prepare a pro forma income statement with some one-time administrative expenses reported similar to discontinued operations. Is such reporting consistent with the qualitative characteristics of accounting information as discussed in the conceptual framework? Explain.

Simpson Corp. is an entertainment firm that derives approximately 30% of its income from the Casino Knights Division, which manages gambling facilities. As an auditor for Simpson Corp., you have recently overheard the following discussion between the controller and financial vice president.

Vice President: If we sell the Casino Knights Division, it seems ridiculous to segregate the results of the sale in the income statement. Separate categories tend to be absurd and confusing to the stockholders. I believe that we should simply report the gain on the sale as other income or expense without detail.

Controller: Professional pronouncements would require that we report this information separately in the income statement. If a sale of this type is considered unusual and infrequent, it must be reported separate from income from continuing operations.

Vice President: What about the walkout we had last month when employees were upset about their commission income? Would this situation not also be subject to reporting outside operating income?

Controller: I am not sure whether this item should get special reporting or not.

Vice President: Oh well, it doesn’t make any difference because the net effect of all these items is immaterial, so no disclosure is necessary.

Instructions

  1. On the basis of the foregoing discussion, answer the following questions. Who is correct about handling the sale? What would be the correct income statement presentation for the sale of the Casino Knights Division?
  2. How should the walkout by the employees be reported?
  3. What do you think about the vice president’s observation of materiality?
  4. What are the earnings per share implications of these topics?

IFRS4-1 Explain the difference between the “nature-of-expense” and “function-of-expense” classifications.
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