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Chapter 4: 7CA (page 192)

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?

Short Answer

Expert verified

The two statement format of reporting comprehensive income is recommended by Nelson.

Step by step solution

01

Meaning of Income Statement

An income statement is a report that contains the revenues and expenses of a business entity for a particular accounting period. Such a report ascertains the profits earned or losses incurred from operating and non-operating activities.

02

Preparation of two statement format

Jenkins Corporation
Comparative Income Statement
For the year ended鈥︹�︹�︹��

Particulars

Current Year

Previous Year

Sales revenue



Less: Cost of goods sold



Gross profit



Less: Operating expense



Net income

$400,000

$410,000

Jenkins Corporation
Comparative Income Statement
For the year ended鈥︹�︹�︹��

Particulars

Current Year

Previous Year

Net income

$400,000

$410,000

Other comprehensive income



Unrealized holding gain

$15,000

$0

Comprehensive income

$415,000

$410,000

03

Preparation of one statement format

04

Recommended format

The two-statement format of reporting comprehensive income is recommended because it involves the preparation of two different statements and helps in understanding the identification of gains or losses associated with the comprehensive income.

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Most popular questions from this chapter

How should the disposal of a component of a business be disclosed in the income statement?

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%.)

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.

Charlie Brown, the controller for Kelly Corporation, is preparing the company鈥檚 income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets鈥� lives, the losses would not be so great. Since depreciation is included among the company鈥檚 operating expenses, he wants to report the losses along with the company鈥檚 expenses, where he hopes it will not be noticed.

Instructions

  1. What are the ethical issues involved?
  2. What should Brown do?

Presented below are certain account balances of Paczki Products Co.

Rent revenue \(6,500 Sales discounts \)7,800

Interest expense \(12,700 Selling expenses \)99,400

Beginning retained earnings \(114,400 Sales revenue \)390,000

Ending retained earnings \(125,000Income tax expense \)31,000

Dividend revenue \(71,000Cost of goods sold \)184,000

Sales returns and allowances \(12,400Administrative expenses \)82,500

Allocation to non controlling interest $17,000

Instructions

From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.
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