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1)
Explain whether Corporation S uses a multiple-step or a single-step format on its income statement.
1)
Explanation of Solution
Multi-step income statement: The income statement represented in multi-steps with several subtotals, to report the income from principal operations, and separate the other expenses and revenues which affect net income, is referred to as multi-step income statement.
Corporation S uses a multiple-step income statement because there are deduction of cost of sales and various operating expenses from the total net revenues to determine the operating income. After the determination of operating income, it adds and deducts interest income and interest expense respectively to calculate the earnings before income taxes, and then subtracts income taxes to compute net earnings including non-controlling interests.
2)
Ascertain the net earnings attributable to Corporation S and also state the basic earnings per common share for 2013.
2)
Explanation of Solution
Net earnings: The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net earnings.
The net earnings attributable to Corporation S for 2013 are $8.3 million.
Basic earnings per common share: Basic earnings per common share represent the amount of income earned per share of outstanding common stock in a period. This ratio is used for analyzing the profitability of company’s stockholders.
The basic earnings per common share attributable to Corporation S for 2013 are $0.01.
3)
Determine the amount of operating income for the year 2013 and 2012.
3)
Explanation of Solution
Operating income: Income statement reports revenues and expenses from business operations, and the result of those operations, before taxes, other revenues and expenses, is referred to as income from operations.
The amount of operating loss for the year 2013 is ($325.4) million and the operating income for the year 2012 is $1,997.4 million.
4)
Determine the amount of interest expense incurred in the year 2013 and 2012.
4)
Explanation of Solution
The amount of interest expense incurred during the year 2013 is $28.1 million.
The amount of interest expense incurred during the year 2012 is $32.7 million.
5)
Determine the amount of the income taxes related to income before income taxes for 2013.
5)
Explanation of Solution
The income taxes related to income before income taxes of Corporation S for 2013 is ($238.7) million.
6)
Determine the amount of general and administrative expense for 2013.
6)
Explanation of Solution
Selling, general, and administrative expenses: The cost expended for selling the merchandise, and general administrative purposes during a certain period are referred to as selling, general, and administrative expenses. Some examples are salaries of sales personnel, salaries of office personnel, store supplies, office supplies, rent, delivery, and advertising expenses.
The general and administrative expense of Corporation S for 2013 is $937.9 million.
7)
Determine the amount of
7)
Explanation of Solution
Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.
- Depreciation and amortization expense reported on the income statement of Corporation S for the year 2013 is $621.4 million.
- Depreciation and amortization expense of 655.6 million is added back to net income on the statement of cash flows.
- The major difference on the income statement is the depreciation expense allocated to cost of sales that includes depreciation on roasting and other production equipment for the production of roast coffee beans.
8)
Determine the amount of dividends on common stock that was paid and declared in 2013. Identify the difference on balance sheet if the amounts are different.
8)
Explanation of Solution
Dividends: This is the amount of cash distributed to stockholders by a company out its earnings, according to their proportion of shares invested in the company.
The amount of Dividends paid reported on the statement of cash flows in 2013 is $628.9 million. However, according to the statement of shareholders’ equity, the dividends declared were $668.6 million. The difference of $39.7 million represents dividends declared but not yet paid by year-end. This amount is reported as increase in the dividend payable liability on the balance sheet that is reported under Note 7: “Other accrued liabilities”.
9)
Identify whether the revenues of Corporation S are seasonal. If so, determine the two quarters in which Corporation S generate most revenues during the year 2012 and 2013.
9)
Explanation of Solution
Revenues: Revenues are earnings from operations of a business. The operating activities are sale of goods and services, and rent revenue.
The revenues of Corporation S are seasonal because the net revenues of Corporation S were highest in the first and second quarters. Corporation S generated revenues in the first and fourth quarter of 2013 which was $3,799.6 million.
10)
Identify whether Corporation S used direct or indirect method to compute the net cash flow from operating activities in 2013 and state the amount.
10)
Explanation of Solution
Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.
Cash flow from operating activities: This section of cash flow statement provides information about the cash received or cash paid in day-to-day operating activities of a company.
Indirect method: Under indirect method, net income is reported first, and then non-cash expenses, losses from fixed assets, and changes in opening balances and ending balances of current assets are adjusted to reconcile the net income balance.
Corporation S reports net cash provided by operating activities by using the indirect method. The net cash flow from operating activities of Corporation S for 2013 is $2,908.3 million.
11)
Determine the amount of net cash used in investing activities for 2013.
11)
Explanation of Solution
Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.
Cash flow from investing activities: This section of cash flows statement provides information concerning about the purchase and sale of capital assets by the company.
The net cash flow used in investing activities of Corporation S for 2013 is $(1,411.2) million.
12)
Determine the amount of cash used to pay for long-term debt in 2013.
12)
Explanation of Solution
Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.
Cash flow from financing activities: This section of cash flows statement provides information about the
The net cash used to pay for long-term debt of Corporation S for 2013 is ($35.2) million.
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Chapter 5 Solutions
Intermediate Accounting: Reporting and Analysis
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