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Chapter 4: Question 2BE (page 181)

Brisky Corporation had net sales of \(2,400,000 and interest revenue of \)31,000 during 2017. Expenses for 2017 were cost of goods sold \(1,450,000, administrative expenses \)212,000, selling expenses \(280,000, and interest expense \)45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.

Short Answer

Expert verified

The Earning per share is $4.44.

Step by step solution

01

Meaning of Sales

Sales refer to the transactions where one party provides products, services, and assets in return for money.

02

Preparing Single-step income statement for Brisky Corporation

Brisky Corporation
Income Statement
For the year ended December 31, 2017

Revenues

Net Sales

$2,400,000

Interest Revenue

$31,000

Total Revenues (A)

$2,431,000

Expenses

Cost of Goods Sold

$1,450,000

Selling Expenses

$280,000

Administrative Expenses

$212,000

Interest Expense

$45,000

Income Tax Expense

$133,200

Total Expenses (B)

$2,120,200

Net Income (A-B)

$310,800

Earnings per Share

$4.44

Working Notes:

  1. Calculation of Income Tax Expense

NetIncomeExpense=(TotalRevenue-COGS-SellingExpense-AdministartionExpense-InterestExpense)×Taxrate=($2,431,000-$1,450,000-$280,000-$212,000-$45,000)×30%=$133,200

Calculation of Earnings per share (EPS)

EarningPershare=NetIncomeOutstandingCommonStock=$310,80070,000Shares=$4.44

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Most popular questions from this chapter

Bobek Inc. has recently reported steadily increasing income. The company reported income of \(20,000 in 2014, \)25,000 in 2015, and \(30,000 in 2016. A number of market analysts have recommended that investors buy the stock because they expect the steady growth in income to continue. Bobek is approaching the end of its fiscal year in 2017, and it again appears to be a good year. However, it has not yet recorded warranty expense.

Based on prior experience, this year’s warranty expense should be around \)5,000, but some managers have approached the controller to suggest a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is \(43,000. Specifically, by recording a \)7,000 warranty accrual this year, Bobek could report an increase in income for this year and still be in a position to cover its warranty costs in future years.

Instructions

(a) What is earnings management?

Question: Which of the following is not an acceptable way of displaying the components of other comprehensive income under IFRS?

(a) Within the statement of retained earnings.

(b) Second income statement.

(c) Combined statement of comprehensive income.

(d) All of these choices are acceptable.

Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?

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.

Lebron Co. owns most but not all of the shares of its subsidiary Bryant Inc. Lebron reported net income of \(124,700. The amount to be attributed to the noncontrolling interest in Bryant is \)30,000. Indicate how Lebron will report the noncontrolling interest in its income statement.
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