BE4-5

Stacy Corporation had income before income taxes for 2012 of $6,300,000. In addition, it suffered an
unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation's tax rate is 30%.
Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation
had 5,000,000 shares of common stock outstanding during 2012. (Round earnings per share to 2
decimal places, e.g. 0.25. For earnings per share use either a negative sign preceding the
number, e.g. -0.45 or parenthesis, e.g. (0.45) for negative numbers. Enter all other amounts as
positive amounts and subtract where necessary.)

Income before tax and extraordinary item

Income tax

Income before extraordinary item

Extraordinary item - loss from casualty

Less: Applicable income tax

$
Net income

Earnings per share

Income before extraordinary item

Extraordinary loss

$
Net income

BE4-5

Stacy Corporation had income before income taxes for 2012 of $6,300,000. In addition, it suffered an
unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation's tax rate is 30%.
Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation
had 5,000,000 shares of common stock outstanding during 2012. (Round earnings per share to 2
decimal places, e.g. 0.25. For earnings per share use either a negative sign preceding the
number, e.g. -0.45 or parenthesis, e.g. (0.45) for negative numbers. Enter all other amounts as
positive amounts and subtract where necessary.)

Income before tax and extraordinary item

Income tax

Income before extraordinary item

Extraordinary item - loss from casualty

Less: Applicable income tax

$
Net income

Earnings per share

Income before extraordinary item

Extraordinary loss

$
Net income

BE4-9

Portman Corporation has retained earnings of $675,000 at January 1, 2012. Net income during 2012 was
$1,400,000, and cash dividends declared and paid during 2012 totaled $75,000. Prepare a retained earnings
statement for the year ended December 31, 2012. (Enter all amounts as positive amounts and
subtract where necessary.)
PORTMAN CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2012
$

Add:

Less:

E4-7

(Income Statement, EPS)

Presented below are selected ledger accounts of McGraw Corporation as of December 31, 2012.
Cash
$50,000
Administrative expenses
100,000
Selling expenses
80,000
Net sales
540,000
Cost of goods sold
260,000
Cash dividends declared (2012)
20,000
Cash dividends paid (2012)
15,000
Discontinued operations (loss before
40,000
income taxes)
Depreciation expense, not recorded in
30,000
2011
Retained earnings, December 31, 2011
90,000
Effective tax rate 30%
(a) Compute net income for 2012. (List multiple entries from largest to smallest amount, e.g. 10, 5,
2. Enter all amounts as positive amounts and subtract where necessary.)
$
Less:

Income before taxes

Net income
(b) Prepare a partial income statement beginning with income from continuing operations before income
tax, and including appropriate earnings per share information. Assume 20,000 shares of common stock
were outstanding during 2012. (Round earnings per share to 2 decimal places, e.g. 5.25 and all
other answers to zero decimal places, e.g. 2,250. For earnings per share use either a
negative sign preceding the number, e.g. 0.45 or parenthesis, e.g. (0.45) for negative
numbers. Enter all other amounts as positive amounts and subtract where necessary.)

Income from continuing

operations before income tax

Less:

Income from continuing operations

Net income
Earnings per share:
$
Income from continuing operations

Loss on discontinued operations, net of tax

$

Net income

E4-11

(Retained Earnings Statement)

McEntire Corporation began operations on January 1, 2009. During its first 3 years of operations, McEntire
reported net income and declared dividends as follows.
Net income
2009
2010
2011

$40,000
125,000
160,000

Dividends
declared
$ -050,000
50,000

The following information relates to 2012.

Income before income tax
Prior period adjustment: understatement of 2010 depreciation expense

$220,000
$ 25,000

(before taxes)
Cumulative decrease in income from change in inventory methods
$ 45,000
(before taxes)
Dividends declared (of this amount, $25,000 will be paid on Jan. 15,
$100,000
2013)
Effective tax rate
40%
(a) Prepare a 2012 retained earnings statement for McEntire Corporation. (Enter all amounts as positive
amounts and subtract where necessary.)
McENTIRE CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2012
$
Correction for depreciation error (net of taxes)

Balance, January 1, as adjusted

Add:

Deduct:

$
Balance, December 31

(b) Assume McEntire Corp. restricted retained earnings in the amount of $70,000 on December 31, 2012.
After this action, what would McEntire report as total retained earnings in its December 31, 2012,
balance sheet?
Total retained earnings

E4-13
(Change in Accounting Principle)
Zehms Company began operations in 2010 and adopted weighted-average pricing for inventory. In 2012, in
accordance with other companies in its industry, Zehms changed its inventory pricing to FIFO. The pretax
income data is reported below.
WeightedYear
Average
FIFO
2010
$370,000
$395,000
2011
390,000
420,000
2012
410,000
460,000
(a) What is Zehms's net income in 2012? Assume a 35% tax rate in all years. (Enter all amounts as
positive amounts and subtract where necessary.)
2012

Income before income tax

Income tax
$

Net Income

(b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO
inventory pricing. (Enter all amounts as positive amounts and subtract where necessary.)
Year

2010

Weighted
Average
$

FIFO

Difference

Tax Rate (35%)

Net Effect

2011
$

Total

(c) Show comparative income statements for Zehms Company, beginning with income before income tax,
as presented on the 2012 income statement. (Enter all amounts as positive amounts and subtract
where necessary.)
2012

Income before income tax

2011

2010

Income tax
Net income

E4-15

(Comprehensive Income)
Bryant Co. reports the following information for 2012: sales revenue $750,000; cost of goods sold
$500,000; operating expenses $80,000; and an unrealized holding loss on available-for-sale securities for
2012 of $50,000. It declared and paid a cash dividend of $10,000 in 2012.
Bryant Co. has January 1, 2012, balances in common stock $350,000; accumulated other comprehensive
income $80,000; and retained earnings $90,000. It issued no stock during 2012.
Prepare a statement of stockholders' equity. (If answer is zero please enter 0, do not leave any fields
blank. Enter all amounts as positive amounts and subtract where necessary.)
BRYANT CO.
Statement of Stockholders' Equity
For the Year Ended December 31, 2012

Total

Beginning balance

Comprehensive
Income
$

Comprehensive income
Net income
Other comprehensive
income

Unrealized holding loss

$
Comprehensive income

Retained Earnings
$

Accumulated Other
Comprehensive
Income
$

Comm
$

Dividends

Ending Balance

P4-4
(Multiple- and Single-step Income, Retained Earnings)
The following account balances were included in the trial balance of Twain Corporation at June 30, 2012.
Sales
Sales discounts
Cost of goods sold
Sales salaries
Sales commissions
Travel expensesalespersons
Freight-out
Entertainment expense
Telephone and Internet expense
sales
Depreciation of sales equipment
Building expenseprorated to
sales

$1,578,500
31,150
896,770
56,260
97,600
28,930
21,400
14,820

Depreciation of office furniture and

equipment
Real estate and other local taxes
Bad debt expenseselling
Building expenseprorated to
administration
Miscellaneous office expenses
Sales returns

$7,250

9,030

Dividends received

38,000

4,980

Bond interest expense

18,000

6,200

Income taxes

Miscellaneous selling expenses

4,715

Office supplies used

Telephone and Internet expense

3,450
2,820

Depreciation understatement due

to
error2009 (net of tax)
Dividends declared on preferred

7,320
4,850
9,130
6,000
62,300

102,000
17,700
9,000

administration

stock
Dividends declared on common
stock

37,000

The Retained Earnings account had a balance of $337,000 at July 1, 2011. There are 80,000 shares of
common stock outstanding.

Using the multiple-step form, prepare an income statement and a retained earnings statement for the
year ended June 30, 2012. (List multiple entries from largest to smallest amount, e.g. 10, 5, 2.
Round earnings per share to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal
places, e.g. 2,250. Enter all other amounts as positive amounts and subtract where
necessary.)
TWAIN CORPORATION
Income Statement
For the Year Ended June 30, 2012
Sales Revenue
$
Less:

Net sales

Gross Profit
Operating Expenses
Selling expenses
$

Administrative expenses

Income from operations

Other Revenues and Gains

Other Expenses and Losses

Income before income tax

$
Net income

$
Earnings per common share

TWAIN CORPORATION
Retained Earnings Statement
For the Year Ended June 30, 2012
$

Add:

Less:
$

Using the single-step form, prepare an income statement and a retained earnings statement for the
year ended June 30, 2012. (List multiple entries from largest to smallest amount, e.g. 10, 5, 2.
Round earnings per share to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal
places, e.g. 2,250. Enter all other amounts as positive amounts and subtract where
necessary.)
TWAIN CORPORATION
Income Statement

For the Year Ended June 30, 2012

Revenues

Total revenues

Expenses

Total expenses

Income before income tax

$
Net income

$
Earnings per common share

TWAIN CORPORATION

Retained Earnings Statement

For the Year Ended June 30, 2012
$

Add:

Less:

IFRS Practice Question 01

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

Extraordinary items.

Income tax.

Cost of goods sold.

Discontinued operations.

IFRS Practice Question 02

Which of the following statements is correct regarding income reporting under IFRS?

Companies must classify expenses either by nature or function.

IFRS does not permit revaluation of property, plant, and equipment, and intangible assets.

IFRS provides a definition for all items presented in the income statement.

IFRS provides the same options for reporting comprehensive income as U.S. GAAP.

IFRS Multiple Choice Question 07

U.S. GAAP allows all of the following statement formats to be used for reporting comprehensive income
except

Combined Income Statement of Comprehensive Income.

Statement of Stockholders' Equity.

Single Income Statement.

Statement of Recognized Income and Expense.

IFRS Multiple Choice Question 08

An iGAAP SoRIE statement might include all of the following except

extraordinary gain or loss.

net income or loss.

unrealized gains or losses on the revaluation of long-term assets.

cumulative effect of a change in accounting principle.

IFRS Multiple Choice Question 06

The iGAAP income statement classification of expenses by nature results in descriptions which include all of
the following except

salaries.

utilities.

depreciation.

distribution.