1.
Prepare separate schedule for selling expense and general administrative for Company C.
1.
Explanation of Solution
Schedule of selling expenses is a report which reports selling expenses in a detailed manner.
Prepare a schedule for Company C’s selling expense.
Company C | ||
Selling expenses | ||
For the year ended December 31, 2016 | ||
Particulars | Amount ($) | Amount ($) |
$8,500 | ||
Advertising expense | $14,100 | |
Sales supplies expense | $4,600 | |
Sales salaries expense | $16,500 | |
Transportation-out | $6,000 | |
Total selling expenses | $49,700 |
Table (1)
Therefore, selling expenses of Company C is $49,700.
Schedule of selling expenses is a report which reports selling expenses in a detailed manner.
Prepare a schedule for general and administrative expenses:
Company C | |
General and administrative expense | |
For the year ended December 31, 2016 | |
Particulars | Amount ($) |
Administrative and office salaries expense | $29,500 |
Property tax expense | $7,700 |
Office supplies expense | $1,800 |
$1,900 | |
Depreciation expense: building and office equipment | $10,000 |
Total general and administrative expenses | $50,900 |
Table (2)
Therefore, general and administrative expense is $50,900.
2.
Prepare a single step income statement for Company C.
2.
Explanation of Solution
Single-step income statement: It is an income statement format in which a single subtotal of all revenue items are listed in one column, and a single subtotal of all expense items including cost of goods sold are listed in another column. Thus, the subtotal of all expense items is deducted from the subtotal of all revenue items to arrive at the net income at the bottom of the statement.
Prepare a single-step income statement for Company C for the year ended December 31, 2016.
Company C | ||
Single-Step Income Statement | ||
For the Year Ended December 31, 2016 | ||
Particulars | Amount | Amount |
($) | ($) | |
Revenues: | ||
Sales (net of $5,200 discounts) | $361,500 | |
Dividend revenue | $900 | |
Gain on sale of sales equipment | $5,000 | |
Total revenues (A) | $367,400 | |
Expenses: | ||
Cost of goods sold | $191,200 | |
Selling expenses | $49,700 | |
General and administrative expenses | $50,900 | |
Interest expense | $4,900 | |
Loss from flood | $5,500 | |
Income tax expense (1) | $19,560 | |
Total expenses (B) | $321,760 | |
Income from continuing operations | $45,640 | |
Results from the discontinuing operations: | ||
Loss from operations of Division M (net of $2,640 income tax credit) | $6,160 | |
Loss on disposal of Division M (net of $2,250 income tax credit) | ($5,250) | ($11,410) |
Net income | $34,230 |
Table (3)
Components of income | Earnings per common share (11,000 shares) ($110,000/$10 par) | |
Income from continuing operation | $4.15 | |
Result from discontinuing operation | ($1.04) | |
Net income | $3.11 |
Table (4)
Working note (1): Calculate the income tax expense:
3.
Prepare the statement of
3.
Explanation of Solution
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Prepare the statement of retained earnings for the first 6 months:
Company C | ||
Statement of Retained Earnings | ||
For the year Ended December 31, 2016 | ||
Particulars | Amount ($) | Amount ($) |
Retained earnings, January 1, 2016 | 428,900 | |
Add: Net income | 34,230 | |
Subtotal | 463,130 | |
Less: Cash Dividends | (9,900) | |
Retained earnings at June 30, 2016 | $453,230 |
Table (5)
Therefore, retained earnings of Company C for the year ended December 31, 2016 is $453,230.
4.
Compute the net profit margin for the year 2016.
4.
Explanation of Solution
Profit margin ratio is used to determine the percentage of net income that is being generated per dollar of revenue or sales.
Compute the profit margin for 2016:
Therefore, net profit margin is 9.5%.
Company C’s net profit margin ratio is increased by 1.5 percentage points from 2015 to 2016. Therefore, is indicates to have a better control over its expenses in relation to its sales. But, it is better to compare the net profit margin based on the income from continuing operations, because Company C had many items on income statement with nonrecurring nature in 2016, which is not appeared in 2015 income statement.
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Chapter 5 Solutions
Bundle: Intermediate Accounting: Reporting And Analysis, 2017 Update, Loose-leaf Version, 2nd + Lms Integrated Cengagenowv2, 2 Terms Printed Access Card
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