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Pretax income in 2006 and 2005 (James's first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been $145,000 in 2006 and $170,000 in 2005. In 2007, Lebron James Company reported pretax income (using weighted-average pricing) of $190,000. Show comparative income statements for Lebron James Company, beginning with Income before income tax, as presented on the 2007 income statement. (The tax rate in all years is 30%.)
Lebanon James Company Comparative Income Statement 2007 1900 00 5700 0 1330 00 2006 1450 00 4350 0 1015 00 2005 1700 00 5100 0 1190 00
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 Loss on discontinued operations Administrative expenses Rent revenue Extraordinary loss $ 95,000 5,000 240,000 40,000 60,000 Cash dividends declared Retained earnings January 1, 2007 Cost of goods sold Selling expenses Sales $ 150,000 600,000 850,000 300,000 1,900,000
Lebanon James Company Income Statement Particular Revenues: Sales Rent Revenue Unrealized Gain salable securities Extra ordinary gain Total Expenses and Gains Selling Exp Cost of Goods Sold Extra ordinary loss Administrative Expenses Loss on discontinued operation Income Tax Total 30000 0 85000 0 60000 24000 0 75000 17340 0 16984 00 35160 0 19000 00 40000 15000 95000 20500 00 Amoun t
Profit
18700 0 25500
2.
Lebanon James Company Statement of Retained Earnings Opening Retained Earnings 600000 Add: Profit after tax 351600 Less: Declared Cash dividends 150000 Retained earnings balance 801600
3. Show how comprehensive income is reported using the second income statement format.
Sales Less: Cost of goods sold Gross Profit on sales Less: Selling and administrative expenses Selling Exp Administrative Expenses Income from operation Other Revenues and Gains Rent Revenue Unrealized Gain salable securities Extra ordinary gain Other Expenses and losses Extra ordinary loss Loss on discontinued operation Income before income tax Income tax Income after tax Earnings per share
30000 0 24000 0
54000 0 51000 0
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.
2009 $1,070,000 0
Instructions 1. Compute the amount of gross profit to be recognized each year assuming the percentage-ofcompletion method is used. 2007 2008 2009 Costs incurred to date $400,000 $935,000 $1,070,000 Cost recognized till last $400,000 $935,000 year Cost recognized in year 400,00 535,00
0
Estimated costs to complete Percentage completed Revenue to be recognized to date Revenue recognized till last year Revenue recognized in year 600,000 40.00% 600,000
0
165,000 85.00% 1,275,000 600,000
135,000
0 100.00% 1,500,000 1,275,000
600,00 0 $200,0 00
675,00 0 $140,0 00
225,000 $90,000
For Billing
Accounts receivable Dr
600000
3. Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.
Under Completed contract method, no gains would be realized in initial 2 years, the whole revenue of $ 1500000 would be recognized in 3rd year 1.e. 2009. The profit would also be recognized in 2009 and that would be (1500000-1070000) = $430000 E18-5: (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow. Balance Sheet Accounts receivableconstruction contract billings Construction in progress Less: Contract billings Cost of uncompleted contract in excess of billings $65,000 61,500 3,500 $21,500
Income Statement Income (before tax) on the contract recognized in 2007 $18,200
Instructions
1.
2.
What was the initial estimated total income before tax on this contract?
Assuming no escalation in cost- Total income on project is @ 21.88% (18200/(65000+18200) So total income = 21.88% of 1000000 = $ 218,800