Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
Question
Chapter 5, Problem 18P

1.

To determine

Prepare the worksheet to develop Company S’s financial statements for the first 6 months of 2019.

1.

Expert Solution
Check Mark

Explanation of Solution

Worksheet: A worksheet is a tool that is used while preparing a financial statement. It is a type of form, having multiple columns and it is used in the adjustment process.

Prepare the worksheet to develop Company S’s financial statements for the first 6 months of 2019:

Intermediate Accounting: Reporting And Analysis, Chapter 5, Problem 18P

Table (1)

Working notes:

a. Calculate the amount of bad debt expense:

Bad debt expense = Net sales amount×Average uncollectible accounts=$90,000×.5%=$450

b. Calculate the amount of interest revenue:

Interest revenue = (Note receivable amount×12%×Period from March 1 to June 30)=$4,000×12%×412=$160

c. Calculate the amount of insurance expense:

Insurance expense = (Amount of prepaid insurance×Payment for 6 months)=($960×612)=$480

d. Calculate the amount of depreciation expense:

Depreciation expense on Building =[(Building amountEstimated life)×612months]=[($55,00025)×612months]=$1,100

Depreciation expense on Building =[(Equipment amountEstimated life)×612months]=[($20,0008years)×612months]=$1,250

Depreciation expense=($1,100+$1,250)=$2,250

e. Calculate the amount of rent revenue:

Rent revenue(Amount of unearned rent×Period from 1/2/2019 to 30/6/2019)=$1,800×512=$750

f. Calculate the amount of interest expense:

Interest expense(Amount of discount on bonds payable+ 10% of discount on bonds payable)=$600+60=$660

g. Calculate the amount of income tax expense for first 6 months:

Calculate estimated annual pre-tax income:

Estimated annual pretax income = (Pre-tax income for 6 months + Pre-tax income for2nd half  )=($90,910$80,460)+$11,550=$10,450+$11,550=$22,000

Calculate estimated effective income tax rate:

Estimated effective income tax rate = [(15% on taxable income + 30% on Balance $2,000 income)Estimated annual pretax income]= [($3,000 + $600)$22,000]=16.4

Calculate the amount of income tax expense for first 6 months:

Income tax expensefor first 6 months} = (Pre-tax income for 6 months×Estimated effective income tax rate)=$10,450×16.4%=$1,714

2 (a)

To determine

Prepare the income statement for the first 6 months of 2019.

2 (a)

Expert Solution
Check Mark

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement for the first 6 months of 2019:

Company S
Interim Income statement
For the period ended June 30, 2019
ParticularsAmount ($)Amount ($)
Sales 90,000
Less: Cost of goods sold(48,600)
Gross profit 41,400
Operating expenses:  
Selling expenses21,000 
Administrative expenses10,200 
Total operating expenses(31,200)
Pre-tax operating income 10,200
Other items:  
Interest revenue160 
Rent revenue750 
Interest expense(660) 
Total other revenues and expenses250
Income before income taxes 10,450
Less: Income tax expense(1,714)
Net income $8,736
   
Earnings per share $1.09

Table (2)

Working notes:

h. Calculate earnings per share for 6 months:

Earnings per share for first 6 months=Net income Number of Common stock oustanding=$8,7368,000 Shares=$1.09

2 (b)

To determine

Prepare the income statement for the second quarter of 2019.

2 (b)

Expert Solution
Check Mark

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement for the second quarter of 2019:

Company S
Interim Income statement
For the period ended June 30, 2019
ParticularsAmount ($)Amount ($)
Sales 50,000
Less: Cost of goods sold (25,600)
Gross profit 24,400
Operating expenses:  
Selling expenses12,200 
Administrative expenses5,990 
Total operating expenses (18,190)
Pre-tax operating income 6,210
Other items:  
Interest revenue120 
Rent revenue450 
Interest expense(330) 
Total other revenues and expenses240
Income before income taxes 6,450
Less: Income tax expense (1,014)
Net income $5,436
   
Earnings per share $0.68

Table (3)

Working notes:

i. Calculate the amount of sales for second quarter:

Sales for second quarter = (Amount of sales in trial balance as of June 30, 2019Amount of sales at the end of first quarter of 2019)=$90,000$40,000=$50,000

j. Calculate the amount of cost of goods sold for 3 months:

Cost of goods sold for second quarter = (Amount of cost of goods sold in trial balance as of June 30, 2019Amount of cost of goods sold at the end of first quarter of 2019)=$48,600$23,000=$25,600

k. Calculate the amount of selling expenses for second quarter:

Selling expenses for 3 months = (Amount of selling expenses in the worksheetAmoutn of selling expense at the end of first quarter of 2019)=($19,750+$1,250)$8,800=$21,000$8,800=$12,200

l. Calculate the amount of administrative expenses for second quarter:

Administrative expenses for second quarter = (Amount of Administrative expenses in the worksheetAmoutn of administrativeexpense at the end of first quarter of 2019)=($8,170+$450+$480+$1,100)$4,210=$10,200$4,210=$5,990

m. Calculate the amount of interest revenue for second quarter:

Interest revenue for second quarter = (Note receivable amount×12%×Revenue earned for 3 months)=$4,000×12%×3/12=$120

n. Calculate the amount of rent revenue for second quarter:

Rent revenue for 3 months =(Amount of unearned rent×Revenue earned for 3 months)=($1,800×312)=$450

o. Calculate the amount of interest expense for second quarter:

Interest expensefor 3 months= [(Amount of discount on bonds payable+ 10% of discount on bonds payable)2]=[$600+602]=$330

p. Calculate the amount of income tax expenses for second quarter:

Income tax expenses for 3 months = (Amount of income tax expense in the worksheetAmoutn of incoem tax expense at the end of first quarter of 2019)=$1,714$700=$1,014

q. Calculate earnings per share for second quarter:

Earnings per share for 3 months=Net income Number of Common stock oustanding=$5,4368,000 Shares=$0.68

3.

To determine

Prepare the statement of retained earnings for the first 6 months.

3.

Expert Solution
Check Mark

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 S
Statement of Retained Earnings
For First 6 Months Ended June 30, 2019
ParticularsAmount ($)Amount ($)
Retained earnings, January 1, 201929,600 
Add: Net income8,736 
Subtotal 38,336
Less: Dividends (3,200)
Retained earnings at June 30, 2019 $35,136

Table (4)

Working note:

r. Calculate the amount of retained earnings, January 1, 2019:

Retained earnings, January 1, 2019 = (Retained earnings amount in trial balance as of June 30, 2019 + Dividend)=$26,400+$3,200=$29,600

4.

To determine

Prepare the balance sheet as on June 30, 2019 of Company S.

4.

Expert Solution
Check Mark

Explanation of Solution

Balance Sheet: Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Interim financial reports: these are the financial reports prepared by the company between the two annual reports.

Prepare the balance sheet as on June 30, 2019 of Company S:

Company S
Balance Sheet
As on June 30, 2019
Assets
Current assets:Amount ($)Amount ($)
Cash 7,200
Accounts receivable 9,850
Note receivable4,000
Interest receivable160
Inventory 24,400
Prepaid insurance 480
Total current assets 46,090
Property and equipment80,000 
Accumulated depreciation(22,350) 
Net property, plant and equipment 57,650
Total assets $103,740
Liabilities
Current liabilities:  
Accounts payable 8,000
Interest payable 600
Dividends payable 3,200
Income tax payable 1,714
Unearned rent 1,050
Bonds payable12,000 
Less: Discount on bonds payable(540)11,460
Total liabilities 26,024
Shareholders’ Equity
Contributed Capital:  
Common stock8,000 
Additional paid in capital on common stock34,580 
Retained earnings35,136 
Total shareholders’ equity77,716
Total liabilities and shareholders’ equity $103,740

Table (5)

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Chapter 5 Solutions

Intermediate Accounting: Reporting And Analysis

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