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Chapter 4: 2 (page 179)
How can information based on past transactions be used to predict future cash flows?
Past transactions are useful in predicting important trends. It is also helpful in providing information regarding the future performance of cash flows.
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Neumann Company computed earnings per share as follows.
Net income
_____________________________________
Common shares outstanding at year-end
Neumann has a simple capital structure. What possible errors might the company have made in the computation? Explain.
How should the disposal of a component of a business be disclosed in the income statement?
Identify at least two situations in which important changes in value are not reported in the income statement.
Question: Willie Nelson, Jr., controller for Jenkins Corporation, is preparing the company鈥檚 financial statements at year-end. Currently, he is focusing on the income statement and determining the format for reporting comprehensive income. During the year, the company earned net income of \(400,000 and had unrealized gains on available-for-sale securities of \)15,000. In the previous year, net income was $410,000, and the company had no unrealized gains or losses.
Instructions
(a) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the two statement format.
(b) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the one statement format.
(c) Which format should Nelson recommend?
The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations \(187,000, income tax applicable to loss on discontinued operations \)25,500, and unrealized holding gain on available-for-sale securities (net of tax) \(15,000.
Gain on sale of equipment \)95,000 Cash dividends declared $150,000
Loss on discontinued operations75,000 Retained earnings January1,2017 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Loss on write-down of inventory 60,000 Sales revenue 1,900,000
Shares outstanding during 2017 were 100,000.
Instructions
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