intermediate accounting 3 Exercise 4-5 and Problem 5-2 PDF

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Here are the solutions to exercises 4-5 and Problem 5-2 of Kieso’s book Intermediate Accounting 16th edition. There is the written problem, the solution made in a table and the computations of how I obtained the given quantity....

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Exercise 4-5 Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company ($000 omitted). Administrative expense Office salaries Depreciation of office furniture and equipment Cost of goods sold Rent revenue Selling Expense Delivery expense Sales commissions Depreciation of sales equipment Sales revenue Income tax Interest expense

$ 4,900 3,960 60,570 17,230 2,690 7,980 6,480 96,500 9,070 1,860

Instructions a. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted). P. Bride Company Income Statement For the year ended December 31, 2017 Sales revenue Cost of goods sold Gross profit Operating Expenses Selling Expenses Sales commissions Depreciation of sales equipment Delivery expenses Administrative Expenses Officer’s salaries Depreciation of office furniture and equipment Income from operations Other Revenues and Gains Rent revenue Other Expenses and Losses

$ 96,500 60,570 35,930

$7,980 6,480 2,690

17,150

4,900 3,960

8,860

26,010 9,920

17,230 27,150

Interest expense

1,860

Income before income tax Income tax Net income

25,290 9,070 $16,220

Earnings per share

$.40

Earnings per share (16,220/40,550 = .40)

b. Prepare and income statement for the year 2017 using the single-step form. P. Bride Company Income Statement For the year ended December 31, 2017 Revenues Net sales Rent revenues Total revenues Expenses Cost of goods sold Selling expenses Administrative expenses Interest expenses Total expenses Income before income tax Income tax Net income Earnings per share

$96,500 17,230 113,730

60,570 17,150 8,860 1,860 88,440 25,290 9,070 $16,220 $.40

c. Which one do you prefer? Discuss. Prefiero el Single-Step por su simplicidad; es más fácil de entender, tiene más énfasis en los totales de ingresos y gastos, e ingresos netos, y no implica prioridad de un ingreso o gasto sobre otro.

Problem 5-2 Presented below are a number of balance sheet items for Montoya, Inc., for the current year, 2017. Goodwill Payroll taxes payable Bonds payable Discount on bonds payable Cash Land Notes payable (to banks) Accounts payable Retained earnings Income taxes receivable Notes payable (long-term) Accumulated depreciation – equipment Inventory Rent payable (short-term) Income taxes payable Rent payable (long-term) Common stock, $1 par value Preferred stock, $10 par value Prepaid expense Equipment Debt investments (trading) Accumulated depreciation – buildings Buildings

$ 125,000 177,591 300,000 15,000 360,000 480,000 265,000 490,000 ? 97,630 1,600,000 292,000 239,800 45,000 98,362 480,000 200,000 150,000 87,920 1,470,000 121,000 270,000 1,640,000

Instructions Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of equity investments (trading) are the same. Montoya, Inc. Balance Sheet December 31, 2017 Assets Current assets Cash Equity investments(trading) Notes receivable Income taxes receivable Inventory Prepaid expenses Total current assets

$ 360,000 121,000 445,700 97,630 239,800 87,920 $1,352,050

Property, plant, and equipment Land Buildings Less: Accum. Depreciation – buildings Equipment Less: Accum. Depreciation – equipment

480,000 $1,640,000 270,200

1,369,800

1,470,000 292,000

1,178,000

Intangible assets Goodwill Total assets

3,027,800

125,000 $4,504,850 Liabilities and Stockholders’ Equity

Current liabilities Accounts payable Notes payable to banks Payroll taxes payable Income taxes payable Rent payable Total current liabilities Long-term liabilities Notes payable Bonds payable Less: Discount on bonds payable Rent payable Total liabilities Stockholders’ equity Capital stock Preferred stock, $10 par; 20,000 shares authorized, 200,000 issued Common stock, $1 par; 400,000 shares authorized, 200,000 issued Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity

$ 490,000 265,000 177,591 98,362 45,000 $1,075,953

1,600,000 $ 300,000 15,000

285,000 480,000

2,365,000 3,440,953

150,000 200,000

Total stockholders’ equity (4,504,850 – 3,440,953 = 1,063,897) Retained earnings (1,063,897 – 350,000 = 713,897)

350,000 713,897 1,063,897 $4,504,850...