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has compiled
the
following information from the company's records as a basis for an income statement for the year
ended
December 31, 2007.
Rental revenue $ 29,000
Interest on notes payable 18,000
Market appreciation on land above cost 31,000
Wages and salariessales 114,800
Materials and suppliessales 17,600
Income tax 37,400
Wages and salariesadministrative 135,900
Other administrative expenses51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the year.
Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement.
(c) Which format do you prefer? Discuss.
(a)
Multiple-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Net sales...............................................................................
$980,000
496,000
484,000
Operating Expenses
Selling expenses
Wages and salaries..................................................
$114,800
45,500
17,600
Administrative expenses
$177,900
135,900
51,700
19,500
207,100
385,000
99,000
29,000
128,000
18,000
110,000
Income tax.....................................................................
37,400
Net income...........................................................................
$ 72,600
$3.63
(b)
Single-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Revenues
Net sales.......................................................................................................
$ 980,000
Rental revenue............................................................................................
29,000
Total revenues.......................................................................................
1,009,000
Expenses
Cost of goods sold.......................................................................................
496,000
Selling expenses...........................................................................................
177,900
Administrative expenses.............................................................................
207,100
Interest expense..........................................................................................
18,000
Total expenses.......................................................................................
899,000
110,000
Income tax...................................................................................................
37,400
Net income.........................................................................................................
72,600
$3.63
Note: An alternative income statement format for the single-step form is to show income
tax as part of expense, and not as a separate item.
(c)
Single-step:
1.
2.
3.
4.
Multiple-step:
1. Provides more information through segregation of operating and nonoperating items.
2. Expenses are matched with related revenue.
E4-16 (Various Reporting Formats) The following information was taken from the records of
Roland Carlson Inc. for the year 2007. Income tax applicable to income from continuing
operations $187,000; income tax applicable to loss on discontinued operations $25,500; income
tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss
$20,400; and unrealized holding gain on available-for-sale securities $15,000.
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold850,000
Rent revenue40,000 Selling expenses 300,000
Extraordinary loss60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
Instructions
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.
(a)
Revenues
Sales..............................................................................................................................
.......................................................................................................................................
Rent revenue
Total revenues................................................................................................
$1,900,000
40,000
1,940,000
Expenses
Cost of goods sold..........................................................................................
Selling expenses.............................................................................................
Administrative expenses...............................................................................
Total expenses....................................................................................
Income from continuing operations before
income tax...............................................................................................
Income tax.......................................................................................
Income from continuing operations..........................................................
Discontinued operations
Loss on discontinued operations...................................................
Less: Applicable income tax reduction.........................................
Income before extraordinary items..........................................................
Extraordinary items:
Extraordinary gain.........................................................................
Less: Applicable income tax..........................................................
Extraordinary loss..........................................................................
Less: Applicable income tax reduction.........................................
Net income...................................................................................................
850,000
300,000
240,000
$1,390,000
550,000
187,000
363,000
$75,000
25,500
95,000
32,300
60,000
20,400
49,500
313,500
62,700
376,200
39,600
$ 336,600
$3.63
(.49)
3.14
.63
(.40)
$3.37
(c)
$600,000
336,600
$936,600
150,000
$786,600
Net income..................................................................................................................
$336,600
15,000
Comprehensive income.............................................................................................
$351,600
E18-4 (Recognition of Profit on Long-Term Contracts) During 2007 Pierson Company started a
construction job with a contract price of $1,500,000. The job was completed in 2009. The
following information is available.
2007 2008 2009
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,0000
Billings to date300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
Instructions
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of
completion method is used.
(b) Prepare all necessary journal entries for 2008.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-
Contract price
Costs:
Costs to date
Estimated costs
to
complete
Total estimated
profit
Percentage
completed to date
Total gross profit
recognized
Less: Gross profit
recognized in
previous years
Gross profit
recognized in
current year
2008
$1,500,000
$400,000
600,000
2009
$1,500,000
$935,000
1,000,000
165,000
$1,500,000
$1,070,000
1,100,000
1,070,000
500,000
400,000
430,000
40%*
85%**
100%
200,000
340,000
430,000
200,000
340,000
$ 200,000
$ 140,000
90,000
**$400,000 $1,000,000
**$935,000 $1,100,000
(b)
Construction in Process.................................................................
($935,000 $400,000)
Materials, Cash, Payables, etc........................................
535,000
600,000
540,000
Construction Expenses..................................................................
Construction in Process.................................................................
Revenue from Long-Term Contracts.................................
535,000
140,000
535,000
600,000
540,000
675,000*
(c)
Gross profit
2008
$ 0
2009
$430,000*
*$1,500,000 $1,070,000
(b)
= 28%
$61,500
21,500
$40,000
P18-7 (Long-Term Contract with an Overall Loss) On July 1, 2007, Kyung-wook Construction
Company Inc. contracted to build an office building for Mingxia Corp. for a total contract price
of $1,950,000. On July 1, Kyung-wook estimated that it would take between 2 and 3 years to
complete the building. On December 31, 2009, the building was deemed substantially completed.
Following are accumulated contract costs incurred, estimated costs to complete the contract, and
accumulated billings to Mingxia for 2007, 2008, and 2009.
AtAt At
12/31/07 12/31/0812/31/09
Contract costs incurred to date$ 150,000 $1,200,000 $2,100,000
Estimated costs to complete the contract1,350,000800,000 0
Billings to Mingxia300,0001,100,0001,850,000
Instructions
(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss
to be recognized as a result of this contract for the years ended December 31, 2007, 2008, and
2009. (Ignore income taxes.)
(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be
recognized as a result of this contract for the years ended December 2007, 2008, and 2009.
(Ignore income taxes.)
(a)
$ 150,000
1,350,000
$1,500,000
$ 195,000
150,000
$ 45,000
2008
Costs to date (12/31/08)
Estimated costs to complete
Estimated total costs
Contract price
$1,200,000
800,000
2,000,000
1,950,000
Total loss
50,000
Total loss
Plus gross profit recognized in 2007
Loss recognized in 2008
50,000
45,000
(95,000
$
OR
$ 975,000
1,050,000
75,000
20,000
$ (95,000
*2009 revenue
($1,950,000 $195,000 $975,000)
2009 estimated costs
2009 loss
$780,000
800,000
$ (20,000)
2009
$2,100,000
0
2,100,000
1,950,000
$ (150,000
Contract price
Total loss
Total loss
Less: Loss recognized in 2008
Gross profit recognized in 2007
Loss recognized in 2009
(b)
$ (150,000)
$95,000
(45,000)
(50,000
$ (100,000
2008
Costs to date (12/31/08)
Estimated costs to complete
Estimated total costs
Deduct contract price
Loss recognized in 2008
$1,200,000
800,000
2,000,000
1,950,000
$ (50,000)
2009
$2,100,000
1,950,000
(150,000)
(50,000)
$ (100,000)