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Chapter 4: Question 2BE (page 181)

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.

Short Answer

Expert verified

The Earning per share is $4.44.

Step by step solution

01

Meaning of Sales

Sales refer to the transactions where one party provides products, services, and assets in return for money.

02

Preparing Single-step income statement for Brisky Corporation

Brisky Corporation
Income Statement
For the year ended December 31, 2017

Revenues

Net Sales

$2,400,000

Interest Revenue

$31,000

Total Revenues (A)

$2,431,000

Expenses

Cost of Goods Sold

$1,450,000

Selling Expenses

$280,000

Administrative Expenses

$212,000

Interest Expense

$45,000

Income Tax Expense

$133,200

Total Expenses (B)

$2,120,200

Net Income (A-B)

$310,800

Earnings per Share

$4.44

Working Notes:

  1. Calculation of Income Tax Expense

NetIncomeExpense=(TotalRevenue-COGS-SellingExpense-AdministartionExpense-InterestExpense)脳Taxrate=($2,431,000-$1,450,000-$280,000-$212,000-$45,000)脳30%=$133,200

Calculation of Earnings per share (EPS)

EarningPershare=NetIncomeOutstandingCommonStock=$310,80070,000Shares=$4.44

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Most popular questions from this chapter

Question: At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.

10% cumulative preferred stock, \(100 par, 107,500 shares \)10,750,000

Common stock, \(5 par, 4,000,000 shares 20,000,000

During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.

Income from continuing operations before taxes \)23,650,000

Discontinued operations (loss before taxes) \(3,225,000

Preferred dividends declared \)1,075,000

Common dividends declared $2,200,000

Effective tax rate 35%

Instructions

Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)

During 2017, Liselotte Company reported income of \(1,500,000 before income taxes and realized a gain of \)450,000 on the disposal of assets related to a discontinued operation. The criteria for classification as a discontinued operation is appropriate for this sale. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%. Indicate an appropriate presentation of these items in the income statement.

Bobek Inc. has recently reported steadily increasing income. The company reported income of \(20,000 in 2014, \)25,000 in 2015, and \(30,000 in 2016. A number of market analysts have recommended that investors buy the stock because they expect the steady growth in income to continue. Bobek is approaching the end of its fiscal year in 2017, and it again appears to be a good year. However, it has not yet recorded warranty expense.

Based on prior experience, this year鈥檚 warranty expense should be around \)5,000, but some managers have approached the controller to suggest a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is \(43,000. Specifically, by recording a \)7,000 warranty accrual this year, Bobek could report an increase in income for this year and still be in a position to cover its warranty costs in future years.

Instructions

(a) What is earnings management?

The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.XXX

  1. The beginning merchandise inventory was \(92,000 and decreased 20% during the current year.
  2. Sales discounts amount to \)17,000.
  3. 20,000 shares of common stock were outstanding for the entire year.
  4. Interest expense was \(20,000.
  5. The income tax rate is 30%.
  6. The cost of goods sold amounts to \)500,000.
  7. Administrative expenses are 20% of the cost of goods sold but only 8% of gross sales.
  8. Four-fifths of the operating expenses relate to sales activities.

Instructions

From the foregoing information prepare an income statement for the year 2017 in single-step form.

How should correction of errors be reported in the financial statements?
See all solutions

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