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Chapter 4: 11BE (page 182)

On January 1, 2017, Richards Inc. had cash and common stock of \(60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2017, it purchased for cash \)20,000 of debt securities that it classified as available-for-sale. It received interest of \(3,000 during the year on these securities. In addition, it has an unrealized holding gain on these securities of \)4,000 net of tax. Determine the following amounts for 2017: (a) net income, (b) comprehensive income, (c) other comprehensive income, and (d) accumulated other comprehensive income (end of 2017).

Short Answer

Expert verified

(a) $3,000

(b) $7,000

(c) $4,000

(d) $4,000

Step by step solution

01

Meaning of Common Stock

Common stock is considered an important element of a corporation. It is reported in the equity section of the balance sheet, which shows the ownership of stakeholders in the company.

02

Calculation of Net Income

The interest amount received is the net income of the securities. So the net income is $3,000.

03

Calculation of comprehensive income

Net income
$3,000
Unrealized holding gain (net of tax)
$4,000
Comprehensive income
$7,000

ComprehensiveIncome=NetIncome+Unrealisedholdinggain=$3,000+$4,000=$7,0000

04

Calculation of Other Comprehensive Income

Other comprehensive income is the unrealized holding gain of $4,000.

05

Calculation of accumulated other comprehensive income

The accumulated other comprehensive income (Unrealized holding Gain) at the end of 2017 is $4,000.

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Most popular questions from this chapter

Discuss the appropriate treatment in the income statement for the following items:

(a) Loss on discontinued operations.

(b) Non-controlling interest allocation.

How can information based on past transactions be used to predict future cash flows?

Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?

Which of the following is not reported in an income statement under IFRS?

(a) Discontinued operations.

(b) Extraordinary items.

(c) Cost of goods sold.

(d) Income tax.

The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.

Sales revenue \(1,578,500

Depreciation expense (office furniture and equipment) \)7,250

Sales discounts \(31,150

Cost of goods sold \)896,770

Property tax expense \(7,320

Salaries and wages expense (sales) \)56,260

Bad debt expense (selling) \(4,850

Sales commissions \)97,600

Maintenance and repairs expense (administration) \(9,130

Travel expense (salespersons) \)28,930

Delivery expense \(21,400

Office expense \)6,000

Entertainment expense \(14,820

Sales returns and allowances \)62,300

Telephone and Internet expense (sales) \(9,030

Dividends received \)38,000

Depreciation expense (sales equipment) \(4,980

Interest expense \)18,000

Maintenance and repairs expense (sales) \(6,200

Income tax expense \)102,000

Miscellaneous selling expenses \(4,715

Depreciation understatement due to error鈥�2014 (net of tax) \)17,700

Office supplies used \(3,450

Telephone and Internet expense (administration) \)2,820

Dividends declared on preferred stock \(9,000

Dividends declared on common stock \)37,000

The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.

Instructions

(a) Using the multiple-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.

See all solutions

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