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Chapter 4: 6BE (page 181)

During 2017, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2016 and 2015 (Williamson鈥檚 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 \(145,000 in 2016 and \)170,000 in 2015. In 2017, Williamson reported a pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson, beginning with 鈥淚ncome before income tax,鈥� as presented on the 2017 income statement. (The tax rate in all years is 30%.)

Short Answer

Expert verified

The net income for 2017 is $126,000.

Step by step solution

01

Meaning of Inventory Valuation Method

Inventory valuation methods are used to measure the inventory available in a business and used by the business in its production function. The four main inventory valuation methods are LIFO, FIFO, specific identification, and weighted average inventory.

02

Calculation of Tax for the years 2017, 2016, and 2015 on pretax income

TaxExpenseFor2017=Pretaxincome脳Taxrate=$180,000脳30%=$54,000

TaxExpenseFor2016=Pretaxincome脳Taxrate=$145,000脳30%=$43,500

TaxExpenseFor2015=PretaxIncome脳Taxrate=$170,000脳30%=$51,000

03

Calculation of net income

Comparative Income Statement for Williamson Company

Particulars

2017

2016

2015

Income before Income tax

$180,000

$145,000

$170,000

Income Tax expense

$54,000

$43,500

$51,000

Net Income

$126,000

$101,500

$119,000

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Most popular questions from this chapter

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

Brisky Corporation had net sales of \(2,400,000 and interest revenue of \)31,000 during 2017. Expenses for 2017 were cost of goods sold \(1,450,000, administrative expenses \)212,000, selling expenses \(280,000, and interest expense \)45,000. Brisky鈥檚 tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.

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You run into Greg Norman at a party and begin discussing financial statements. Greg says, 鈥淚 prefer the single step income statement because the multiple-step format generally overstates income.鈥� How should you respond to Greg?

Question: (Earnings per Share) The stockholders鈥� equity section of Hendly Corporation appears below as of December 31, 2017.

8% preferred stock, \(50 par value, authorized

100,000 shares, outstanding 90,000 shares \)4,500,000

Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000

Additional paid-in capital 20,500,000

Retained earnings \)134,000,000

Net income 33,000,000167,000,000

\(202,000,000

Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.

Instructions

Compute earnings per share data as it should appear on the income statement of Hendly Corporation.
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