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 20P

1.

To determine

Provide a multi-step income statement for the year 2019.

1.

Expert Solution
Check Mark

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
ParticularsAmountAmount
($)($)
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) 
Depreciation expenses($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 incomeEarnings per common share
Net income $2.52

Table (1)

2.

To determine

Provide a schedule that discloses the revenues, profits, and assets of divisions 1 and 2 and the remaining operating segments.

2.

Expert Solution
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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
ParticularsReportable Operating SegmentsAll Other SegmentsTotals
 12
Total revenues (Sales)98,00060,00042,000200,000
Segment profit (Pretax)17,10010,8309,75037,680
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 asset135,00087,00054,000276,000
General corporate assets   24,000

Table (2)

Working note (1):

Prepare a working paper for segment reporting:

Intermediate Accounting: Reporting And Analysis, Chapter 5, Problem 20P

Table (3)

3.

To determine

Provide a suitable segment notes related to depreciation, profit, and capital expenditures.

3.

Expert Solution
Check Mark

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:

Segment profit=Total profitsTotal operating expenses

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.

To determine

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.

Expert Solution
Check Mark

Explanation of Solution

Compute the profit margin before income taxes for Division 1:

Profit margin before incometaxes for Division 1}=(Segment pretax profitSegment revenues×100)=($17,100$98,000×100)=17.5%

Calculate profit margin before income taxes for Division 2:

Profit margin before incometaxes for Division 2}=(Segment pretax profitSegment revenues×100)=($10,830$60,000×100)=18.05%

Calculate profit margin before income taxes for other division:

Profit margin before incometaxes for Other Division }=(Segment pretax profitSegment revenues×100)=($9,750$42,000×100)=23.21%

Hence, the profit margin before income taxes for Division 1, 2 and other division is17.5%,18.05% and 23.21%.

Calculate pretax return on identifiable assets for Division 1:

Pretax return on identifiableassets for for Division 1}=(Segment pretax profitSegment assets×100)=($17,100$135,000×100)=12.7%

Calculate pretax return on identifiable assets for Division 2:

Pretax return on identifiableassets for for Division 2}=(Segment pretax profitSegment assets×100)=($10,830$87,000×100)=12.4%

Calculate pretax return on identifiable assets for other division:

Pretax return on identifiableassets for for Other Division}=(Segment pretax profitSegment assets×100)=($9,750$54,000×100)=18.1%

Hence, the pretax return on identifiable assets Division 1, 2 and other division is12.7%,12.4% and 18.1%.

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

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