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Chapter 4: Question 3BE (page 181)
Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation
The net income for the company is $310,800.
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Question: O’Malley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2017. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank.
O’MALLEY CORPORATION
INCOME STATEMENT
Sales revenue \(850,000
Dividends 32,300
Gain on recovery of insurance proceeds from
earthquake loss 38,500
920,800
Less:
Selling expenses \)101,100
Cost of goods sold 510,000
Advertising expense 13,700
Loss on obsolescence of inventories 34,000
Loss on discontinued operations 48,600
Administrative expense 73,400 780,800
Income before income tax 140,000
Income tax 56,000
Net income $84,000
Instructions
Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.
Question: Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2017.
(000 omitted)
Net sales revenue \(640,000
Costs and expenses
Cost of goods sold \)500,000
Selling, general, and administrative expenses 66,000
Other, net 17,000
583,000
Income before income tax 57,000
Income tax 19,400
Net income 37,600
Retained earnings at beginning of period, as previously reported 141,000
Adjustment required for correction of error (7,000)
Retained earnings at beginning of period, as restated 134,000
Dividends on common stock (12,200)
Retained earnings at end of period \(159,400
Additional facts are as follows.
1. “Selling, general, and administrative expenses” for 2017 included a charge of \)8,500,000 that was usual but infrequently occurring.
2. “Other, net” for 2017 included a loss on sale of equipment of $6,000,000.
3. “Adjustment required for correction of an error” was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made).
4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements.
Instructions
Determine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)
How should the disposal of a component of a business be disclosed in the income statement?
Discuss the appropriate treatment in the income statement for the following items:
(a) Loss on discontinued operations.
(b) Non-controlling interest allocation.
(Multiple-Step Statement, Retained Earnings Statement) The following information is related to Dickinson Company for 2017.
Retained earnings balance, January 1, 2017 \(980,000
Sales revenue 25,000,000
Cost of goods sold 16,000,000
Interest revenue 70,000
Selling and administrative expenses 4,700,000
Write-off of goodwill 820,000
Income taxes for 2017 1,244,000
Gain on the sale of investments 110,000
Loss due to flood damage 390,000
Loss on the disposition of the wholesale division (net of tax) 440,000
Loss on operations of the wholesale division (net of tax) 90,000XXX
Dividends declared on common stock \)250,000
Dividends declared on preferred stock 80,000
Dickinson Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2017, there were 500,000 shares of common stock outstanding all year.
Instructions
Prepare a multiple-step income statement and a retained earnings statement.
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