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Chapter 4: Question 8BE (page 181)
In 2017, Hollis Corporation reported net income of \(1,000,000. It declared and paid preferred stock dividends of \)250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.
Hollis's earnings per share are $3.95
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The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.XXX
Instructions
From the foregoing information prepare an income statement for the year 2017 in single-step form.
A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue on future upgrades to its products. Some contend that Apple’s quality of earnings is low. What does the term “quality of earnings” mean?
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?
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.
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.
Instructions
Refer to P&G’s financial statements and the accompanying notes to answer the following questions.
(a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information.
(b) What are P&G’s primary revenue sources?
(c) Compute P&G’s gross profit for each of the years 2012–2014. Explain why gross profit decreased in 2014.
(d) Why does P&G make a distinction between operating and nonoperating revenue?
(e) What financial ratios did P&G choose to report in its “Financial Summary” section covering the years 2009–2014?
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