1.
Provide a multi-step income statement for the year 2019.
1.
Explanation of Solution
Multi step income statement: A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.
Provide a multi-step income statement for the year 2019.
Company R | ||
Multi-Step Income Statement | ||
For the Year Ended December 31, 2019 | ||
Particulars | Amount | Amount |
($) | ($) | |
Sales revenue | $200,000 | |
Less: Cost of goods sold | ($121,120) | |
Gross profit | $78,880 | |
Less: Operating expenses | ||
Selling expenses | ($26,000) | |
Administrative expenses | ($16,000) | |
($7,000) | ||
Operating expenses | ($49,000) | |
Operating income | $29,880 | |
Other revenues and expenses: | ||
Interest revenue | $1,000 | |
Interest expense | ($4,880) | |
Loss due to flood | ($8,000) | ($11,880) |
Income before taxes | $18,000 | |
Less: Income taxes @30% | ($5,400) | |
Net income | $12,600 | |
Components of income | Earnings per common share | |
Net income | $2.52 |
Table (1)
2.
Provide a schedule that discloses the revenues, profits, and assets of divisions 1 and 2 and the remaining operating segments.
2.
Explanation of Solution
Provide a schedule that discloses the revenues, profits, and assets of divisions 1 and 2 and the remaining operating segments.
Company R | ||||
Industry Segment Financial Results | ||||
For the Year Ended December 31, 2019 | ||||
Particulars | Reportable Operating Segments | All Other Segments | Totals | |
1 | 2 | |||
Total revenues (Sales) | 98,000 | 60,000 | 42,000 | 200,000 |
Segment profit (Pretax) | 17,100 | 10,830 | 9,750 | 37,680 |
General corporate expenses | -7,800 | |||
Interest revenue | 1,000 | |||
Interest expense | -4,880 | |||
Loss due to flood | -8,000 | |||
Income before taxes | 18,000 | |||
Identifiable asset | 135,000 | 87,000 | 54,000 | 276,000 |
General corporate assets | 24,000 |
Table (2)
Working note (1):
Prepare a working paper for segment reporting:
Table (3)
3.
Provide a suitable segment notes related to depreciation, profit, and capital expenditures.
3.
Explanation of Solution
In the calculation of segment profit none on the following item has been added or subtracted. Formula for segment profit is as follows:
Depreciation expenses for Division 1 and 2 are $2,240 and $1,680 respectively.
In the year of 2019, capital expenditure amount of $25,000 placed in Division 1 and $6,000 placed in Division 2.
4.
Compute the profit margin before income taxes and pretax return on identifiable assets for Divisions 1 and 2 and for other divisions and evaluate the ratios.
4.
Explanation of Solution
Compute the profit margin before income taxes for Division 1:
Calculate profit margin before income taxes for Division 2:
Calculate profit margin before income taxes for other division:
Hence, the profit margin before income taxes for Division 1, 2 and other division is
Calculate pretax return on identifiable assets for Division 1:
Calculate pretax return on identifiable assets for Division 2:
Calculate pretax return on identifiable assets for other division:
Hence, the pretax return on identifiable assets Division 1, 2 and other division is
These ratios expose that the profit margin before income taxes for other division has higher margin of 23.21%.
This ratio expose that the other operating divisions have a higher pretax profit margin and pretax return on identifiable assets than the two reportable divisions. This reveals that the economic resources are used lesser in the reportable divisions.
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Chapter 5 Solutions
Intermediate Accounting: Reporting And Analysis
- Comprehensive: Income Statement and Retained Earnings Milwaukee Manufacturing Company presents the following partial list of account balances, after adjustments, as of December 31, 2019: The following information is also available but is not reflected in the preceding accounts: a. The company sold Division E (a major component of the company) on August 2, 2019. During 2019, Division E had incurred a pretax loss from operations of 16,000. However, because the acquiring company could vertically integrate Division E into its facilities, Milwaukee Manufacturing was able to recognize a 42,000 pretax gain on the sale. b. On January 2, 2019, without warning, a foreign country expropriated a factory of Milwaukee Manufacturing which had been operating in that country. As a result of that expropriation, the company has incurred a pretax loss of 30,000. c. The common stock was outstanding for the entire year. A cash dividend of 1.20 per share was declared and paid in 2019. d. The 2019 income tax expense totals 31,050 and consists of the following: Required: 1. As supporting documents for Requirement 2, prepare separate supporting schedules for selling expenses and for general and administrative expenses (include depreciation expense where applicable in these schedules). 2. Prepare 2019 multiple-step income statement for Milwaukee Manufacturing. 3. Prepare a 2019 retained earnings statement. 4. Next Level What was Milwaukee Manufacturings return on common equity for 2019 if its average shareholders equity during 2019 was 500,000? What is your evaluation of this return on common equity if its target for 2019 was 15%? 5. Next Level Discuss how Milwaukee Manufacturings income statement in Requirement 2 might be different if it used IFRS.arrow_forwardIncome Statement and Retained Earnings Huff Company presents the following items derived from its December 31, 2019, adjusted trial balance: The following information is also available for 2019 and is not reflected in the preceding accounts: 1. The common stock has been outstanding all year. A cash dividend of 1.28 per share was declared and paid. 2. Land was sold at a pretax gain of 6,300. 3. Division X (a major component of the company) was sold at a pretax gain of 4,700. It had incurred a 9,500 pretax operating loss during 2019. 4. A tornado, which is an unusual event in the area, caused a 5,400 pretax loss. 5. The income tax rate on all items of income is 30%. 6. The average shareholders equity is 90,000. Required: 1. Prepare a 2019 multiple-step income statement for Huff. 2. Prepare a 2019 retained earnings statement. 3. Compute the 2019 return on common equity (Net Income 4 Average Shareholders Equity).arrow_forwardNet Income and Comprehensive Income At the beginning of 2019, JR Companys shareholders equity was as follows: During 2019, the following events and transactions occurred: 1. JR recognized sales revenues of 108,000. It incurred cost of goods sold of 62,000 and operating expenses of 12,000, 2. JR issued 1,000 shares of its 5 par common stock for 14 per share. 3. JR invested 30,000 in available-for-sale securities. At the end of the year, the securities had a fair value of 35,000. 4. JR paid dividends of 6,000. The income tax rate on all items of income is 30%. Required: 1. Prepare a 2019 income statement for JR which includes net income and comprehensive income ignore earnings per share). 2. For 2016 prepare a separate (a) income statement (ignore earnings per share) and (b) statement of comprehensive income.arrow_forward
- Income Statement, Lower Portion Cunningham Company reports a retained earnings balance of 365,200 at the beginning of 2019. For the year ended December 31, 2019, the company reports pretax income from continuing operations of 150,500. The following information is also available pertaining to 2019: 1. The company declared and paid a 0.72 cash dividend per share on the 30,000 shares of common stock that were outstanding the entire year. 2. The company incurred a pretax 21,000 loss as a result of an earthquake, which is not unusual for the area. This is included in the 150,500 income from continuing operations. 3. The company sold Division P (a component of the company) in May. From January through May, Division P had incurred a pretax loss from operations of 33,000. A pretax gain of 15,000 was recognized on the sale of Division P. Required: Assuming that all the pretax items are subject to a 30% income tax rate: 1. Complete the lower portion of Cunningham's 2019 income statement beginning with Pretax Income from Continuing Operations. Include any related note to the financial statements. 2. Prepare an accompanying retained earnings statement.arrow_forwardFisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for 2019. The corporation also has $30,000 in dividends from publicly traded domestic corporations in which the ownership percentage was 45 percent. Calculate the corporation's dividends received deduction for 2019. $_____________ Assume that instead of $210,000, Fisafolia Corporation has gross income from operations of $135,000. Calculate the corporation's dividends received deduction for 2019. $___________ Assume that instead of $210,000, Fisafolia Corporation has gross income from operations of $158,000. Calculate the corporation's dividends received deduction for 2019. $_____________arrow_forwardComprehensive: Income Statement and Supporting Schedules The following s a partial list of the account balances, after adjustments, of Silvoso Company on December 31, 2019: The following information is also available: 1. The company declared and paid a 0.60 per share cash dividend on its common stock. The stock was outstanding the entire year. 2. A physical count determined that the December 31, 2019, ending inventory is 34,100. 3. A tornado destroyed a warehouse, resulting in a pretax loss of 12,000. The last tornado in this area had occurred 10 years earlier. 4. On May 1, 2019, the company sold an unprofitable division (R). From January through April, Division R (a major component of the company) had incurred a pretax operating loss of 8,700. Division R was sold at a pretax gain of 10,000. 5. The company is subject to a 30% income tax rate. Its income tax expense for 2019 totals 4,230. The breakdown is as follows: 6. The company had average shareholders equity of 150,000 during 2019. Required: 1. As supporting documents for Requirement 2, prepare separate supporting schedules for cost of goods sold, selling expenses, general and administrative expenses, and depreciation expense. 2. Prepare a 2019 multiple-step income statement for Silvoso. Include any related note to the financial statements. 3. Prepare a 2019 retained earnings statement. 4. Next Level What was Silvosos return on common equity for 2019? What is your evaluation of Silvosos return on common equity if last year it was 10%?arrow_forward
- Roseau Company is preparing its annual earnings per share amounts to be disclosed on its 2019 income statement. It has collected the following information at the end of 2019: 1. Net income: 120,400. Included in the net income is income from continuing operations of 130,400 and a loss from discontinued operations (net of income taxes) of 10,000. Corporate income tax rate: 30%. 2. Common stock outstanding on January 1, 2019: 20,000 shares. 3. Common stock issuances during 2019: July 6, 4,000 shares; August 24, 3,000 shares. 4. Stock dividend: On October 19, 2019, the company declared a 10% stock dividend that resulted in 2,700 additional outstanding shares of common stock. 5. Common stock prices: 2019 average market price, 30 per share; 2019 ending market price, 27 per share. 6. 7% preferred stock outstanding on January 1, 2019: 1,000 shares. Terms: 100 par, nonconvertible. Current dividends have been paid. No preferred stock issued during 2019. 7. 8% convertible preferred stock outstanding on January 1, 2019: 800 shares. The stock was issued in 2018 at 130 per share. Each 100 par preferred stock is currently convertible into 1.7 shares of common stock. Current dividends have been paid. To date, no preferred stock has been converted. 8. Bonds payable outstanding on January 1, 2019: 100,000 face value. These bonds were issued several years ago at 97 and pay annual interest of 9.6%. The discount is being amortized in the amount of 300 per year. Each 1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted. 9. Compensatory share options outstanding: Key executives may currently acquire 3,000 shares of common stock at 20 per share. The options were granted in 2018. To date, none have been exercised. The unrecognized compensation cost (net of tax) related to the options is 4 per share. Required: 1. Compute the basic earnings per share. Show supporting calculations. 2. Compute the diluted earnings per share. Show supporting calculations. 3. Show how Roseau would report these earnings per share figures on its 2019 income statement. Include an explanatory note to the financial statements.arrow_forwardComprehensive The following are Farrell Corporations balance sheets as of December 31, 2019, and 2018, and the statement of income and retained earnings for the year ended December 31, 2019: Additional information: a. On January 2, 2019, Farrell sold equipment costing 45,000, with a book value of 24,000, for 19,000 cash. b. On April 2, 2019, Farrell issued 1, 000 shares of common stock for 23,000 cash. c. On May 14, 2019, Farrell sold all of its treasury stock for 25,000 cash. d. On June 1, 2019, Farrell paid 50, 000 to retire bonds with a face value (and book value) of 50, 000. e. On July 2, 2019, Farrell purchased equipment for 63, 000 cash. f. On December 31, 2019, land with a fair market value of 150,000 was purchased through the issuance of a long-term note in the amount of 150,000. The note bears interest at the rate of 15% and is due on December 31, 2021. g. Deferred taxes payable represent temporary differences relating to the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial statement reporting. Required: 1. Prepare a spreadsheet to support a statement of cash flows for Farrell for the year ended December 31, 2019, based on the preceding information. 2. Prepare the statement of cash flows. (Appendix 21.1) Spreadsheet and Statement Refer to the information for Farrell Corporation in P21-13. Required: 1. Using the direct method for operating cash flows, prepare a spreadsheet to support a 2019 statement of cash flows. (Hint: Combine the income statement and December 31, 2019, balance sheet items for the adjusted trial balance. Use a retained earnings balance of 291,000 in this adjusted trial balance.) 2. Prepare the statement of cash flows. (A separate schedule reconciling net income to cash provided by operating activities is not necessary.)arrow_forwardComprehensive The following are Farrell Corporations balance sheets as of December 31, 2019, and 2018, and the statement of income and retained earnings for the year ended December 31, 2019: Additional information: a. On January 2, 2019, Farrell sold equipment costing 45,000, with a book value of 24,000, for 19,000 cash. b. On April 2, 2019, Farrell issued 1,000 shares of common stock for 23,000 cash. c. On May 14, 2019, Farrell sold all of its treasury stock for 25,000 cash. d. On June 1, 2019, Farrell paid 50,000 to retire bonds with a face value (and book value) of 50,000. e. On July 2, 2019, Farrell purchased equipment for 63,000 cash. f. On December 31, 2019. land with a fair market value of 150,000 was purchased through the issuance of a long-term note in the amount of 150,000. The note bears interest at the rate of 15% and is due on December 31, 2021. g. Deferred taxes payable represent temporary differences relating to the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial statement reporting. Required: 1. Prepare a spreadsheet to support a statement of cash flows for Farrell for the year ended December 31, 2019, based on the preceding information. 2. Prepare the statement of cash flows.arrow_forward
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