Intermediate Accounting: Assignment 4

Exercise 4-6: Multiple-step and Extraordinary Items

The following balances were taken from the books of Maria Conchita Alonzo Corp. on December 31, 2014.

Interest revenue $ 86,000 Accumulated depr. (building)

Cash 51,000 NA Notes receivable
x Sales revenue 1,380,000 x Selling expenses
Accounts receivable 150,000 NA Accounts payable
Prepaid insurance 20,000 Bonds payable
x Sales returns and allowances 150,000 x Admin. and general expenses
Allowance for doubtful accounts 7,000 NA Accrued liabilities
x Sales discounts 45,000 x Interest expense
NA Land 100,000 NA Notes payable
NA Equipment 200,000 Loss from earthquake (extraord. item)
NA Building 140,000 Common stock
x Cost of goods sold 621,000 Retained earnings
Accumulated depr. (equip) 40,000

Assume that the total effective tax rate on all items is 34%. Prepare a multiple-step income statement. Make it
look nice! 100,000 shares of common stock were outstanding during the year.

Maria Conchita Alonzo Corporation

Income Statement
For the Year Ended December 31, 2014

Sales
Sales Revenue $1,380,000.00
Less: Sales Discounts $ 45,000.00
Less: Sales returns and allowances $150,000.00 $ 195,000.00

Net Sales $1,185,000.00

COGS $ (621,000.00)
Gross profit $ 564,000.00

Operating Expenses
Selling expenses $ 194,000.00
Admin. & General Expenses $ 97,000.00 $291,000.00

Operating Income

Non operating Functions

Interest Revenue $ 86,000.00
Interest Expense $ 60,000.00 $ 26,000.00

Income before taxes $ 299,000.00

Income Tax $ 101,660.00
Income from continuing operations $ 197,340.00
Extraordinary items
Loss from earthquake($150,000*1-.34) (Net of ta $ 99,000.00

Net Income for the year $ 98,340.00

Earnings Per Share $ 0.98

EPS -
 $ 28,000
155,000
194,000
170,000
100,000
97,000
32,000
60,000
100,000
150,000
500,000
21,000

ent. Make it

Core
persistance

Operating
Section

Non-Operating

1.97
-0.99

0.98
Exercise 4-14: Change in Accounting Principle
Tim Mattke Company began operations in 2012 and adopted weighted-average pricing for inventory. In 2014, in
accordance with other companies in its industry, Zehms changed its inventory pricing to FIFO. The pretax
income data is reported below.

Weighted- difference
Year Average FIFO
2012 $ 370,000 $ 395,000 25
2013 390,000 430,000 40
2014 410,000 450,000 $ 65

(a) What is Mattke's net income in 2014? Assume a 35% tax rate in all years.
$256,750 292

(b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory
pricing. Also, show the journal entry in 2014 to account for this effect.
Journal Entry

$ 65,000 Inventory (+A) $65,000

Def. tax (+L)
xtax 0.35 RE (+SE)
$42,250.00

(c) Show comparative income statements for Tim Mattke Company, beginning with income before income tax,
as presented on the 2014 income statement.
Tim Mattke Company
Income Statement
For the Year ended December 31, 2014

2014 2013 2012

Pre Income Tax $450,000 $430,000 $395,000
Less: Income tax expens ### $150,500.00 $138,250.00

Net Income ### $279,500.00 $256,750.00

y

$ 22,750
$42,250
Doyle Problem 4-1: Change in Accounting Estimate
Company X buys a piece of equipment on 7/1/13 for $11,000. They estimate a salvage value
of $1,000 at the end of its 10 year life. They use straight-line depreciation. Cost
Salvage
In 2014, Company X changes its estimate of the equipment's useful life from 10 years to 20 yearsEst. life
Show all of the journal entries related to this equipment for 2013, 2014, and 2015 below. Assume
that the firm only issues annual financial statements and its year end is 12/31.

Journal Entry
7/1/2013 Equipment (+A) $11,000 11000-1000
Cash (-A) $11,000 10year
### Depreciation Expense (+E) $500
Accumulative Depreciation (-A) $500
### Depreciation Expense (+E) $487
Accumulative Depreciation (-A) $487 11000-1000-500
### Depreciation Expense (+E) $487 19.5
Accumulative Depreciation (-A) $487
 11000
1000
10 years

x 6 of 12 months 500

11000-1000-500 487
Doyle Problem 4-2: Comprehensive Income
Find Hershey's financial statements and notes for the year ended 12/31/13 in its 10-K to answer question 2 below.
One place to find Hershey's most recent 10-K is in the EDGAR database at the SEC. You can link to the database
at Yahoo's Finance page. Type in Hershey's ticker symbol "HSY" and then click on the "SEC Filings" link on the
left. Scroll down and choose the most recent 10-K, which was filed on 2/21/14, and click on the Full Filing link.
You can then click on the particular item you want to examine.

1. What is comprehensive income? How is it different than net income?

Comprehensive income includes all changes in equity during a period except those resulting from
investments by owners and sitrubutions to owners. It includes all gaines, loses, revenues, and expenses
reported in net income and those gains and losses that bypass net income but affect stockholders equity.

Its different from net income because it includes not only revenue and expenses, but also gaines and
losses as well.

2. For Hershey Corporation, locate the following amounts for the year ended 12/31/13. You can find these
amounts on the Statement of Stockholders' Equity, the Balance Sheet, the Income Statement, and/or Footnote 9.

(a) Net Income $ 820,470

(b) Other Comprehensive Income $ 218,509
(c) Comprehensive Income $ 1,038,979

(d) Accumulated Other Comprehensive Income $ 166,567

(e) List the descriptions and amounts that compose 2013 Other Comprehensive Income
(see footnote 9)
Doyle Problem 4-3: Earnings Per Share
The partial income statement for 2014 for Wentworth Company is shown below. Show how EPS
would be presented below. Assume that there are 10,000 weighted average common shares
outstanding. Note also that the company has 300 preferred shares outstanding and paid
$3,000 (total) in preferred dividends during 2014.

Wentworth Corporation
Income Statement (partial)
For the Year Ended December 31, 2014

Income before taxes and extraordinary item $ 12,500

Income Tax Expense 4,250
Income before extraordinary item 8,250 (8250-3000)/10,000

Extraordinary Loss, net of tax benefit of $612 (1,188) (1188)/10,000

Net Income $ 7,062

7062-3000 4064
10000
EPS 0.4064
EPS section

$ 0.53 > start here at Income before EI to be

comparable to other companies
$ 0.12

$ 0.41
NI-Preferred Div
Common Shares
Doyle Problem 4-4: Discontinued Operation and Extraordinary Items
For the year ended 12/31/14, Zelnor Corporation has income before taxes, discontinued operations,
and extraordinary items of $300,000. Their tax rate is 34%. They have 70,000 weighted average
common shares outstanding in 2014. They also have the following irregular items:
a) A discontinued space suit division. The gross amount of the income in 2014
from the operation of the division is $25,000. The gross amount of the loss from
the disposal of the division is $30,000.
b) An extraordinary loss (tornado) of $20,000 gross.

Show the income statement presentation for 2014, beginning at Income before Taxes, Discontinued
Operations, and Extraordinary Items. Don't forget EPS!

Zelnor Corporation
Income Statement
For The Year Ended 12/31/14

Pre tax income $ 300,000

Less: Tax expense $(102,000)
Income from Cont. Operations $ 198,000

Discontined Items
Gross income (after taxes) $ 16,500
Less: loss on disposal $ (19,800) $ (3,300)
$ 194,700
Extraordinary Loss
Loss from tornado $ (13,200) -13200
Net Income $ 181,500

EPS $2.59