Practice Sheet 2 PDF

Preview

Summary

Practice Questions Chapter 4...

Description

Ex. 4-96 Calculation of net income from the change in shareholders' equity Presented below is selected information pertaining to Pullman Enterprises Ltd. for last year: Assets, January 1............................................................... $240,000 Assets, December 31......................................................... 320,000 Liabilities, January 1........................................................... 120,000 Common shares, December 31.......................................... 60,000 Retained earnings, December 31....................................... 20,000 Common shares issued during the year............................. 2,000 Dividends declared during the year................................... 32,000 Instructions Calculate the net income for last year. Solution 4-96 January 1 December 31 Assets................................................................................ $240,000 $320,000 Liabilities............................................................................ 120,000 240,000 Shareholders' equity.......................................................... $ 120,000 $80,000 * Calculation of net income: Shareholders' equity, Dec 31....................................... $ 80,000 Less shareholders' equity, Jan 1................................... (120,000) Decrease...................................................................... (40,000) Add back dividend declared......................................... 32,000 Less common shares issued......................................... (2,000) Net income (loss)...................................................$ (10,000) *$60,000 + $20,000 Ex. 4-98 Comprehensive income Tarzana Corporation completed its first year of operations on December 31, 2020. Results and other information for the year included the following: Sales.................................................................................. $810,000 Cost of goods sold.............................................................. 320,000 Operating expenses........................................................... 94,000 Unrealized holding gain from investments (accounted for under the fair value through comprehensive income model) ........................................................................................... 31,000 Instructions Based on the information provided, prepare a combined statement of income and comprehensive income. Ignore income taxes and EPS. Solution 4-98 TARZANA CORPORATION Statement of Income and Comprehensive Income For the Year Ended December 31, 2020

Sales............................................................................ Cost of goods sold.............................................................. Gross profit........................................................................ Operating expenses........................................................... Net income......................................................................... Other comprehensive income Unrealized holding gain – OCI...................................... Comprehensive income......................................................

$810,000 320,000 490,000 94,000 396,000 31,000 $427,000

104 Discontinued operations Hibou Ltd., a private company based in Vancouver, decided to sell its Industrial Design Division. After two years of losses and heavy competition, a plan to dispose of the division was put in place. At the end of 2020, the plan was finalized and approved by the board of directors. The sale is anticipated to be completed by June 30, 2021. Other information: 1. Hibou's 2020 after-tax net income (excluding the results from the Industrial Design Division) was $450,000. 2. During the year, the division reported an after-tax loss of $120,000 (revenues: $30,000, expenses: $150,000). 3. Management estimates that after-tax legal and audit fees of $32,000 as well as severance payments of $66,000 will be required to finalize the disposal plan. A portion of these costs is expected to be offset by the after-tax proceeds of $61,000 from the sale of the division's assets. Instructions Assuming the Industrial Design Division qualifies for treatment as a discontinued operation, prepare a partial income statement for Hibou for 2020. The statement should begin with income from continuing operations and include an appropriate footnote pertaining to the disposal of the Industrial Design Division. Solution 4-104 Partial income statement: HIBOU LTD. Partial Income Statement For the Year Ended December 31, 2020 Net income from continuing operations...................................

$450,000

Discontinued operations* Loss from operation of discontinued Industrial Design Division (net of tax)................................ $120,000 Loss from disposal of Industrial Design Division (net of tax)................................ 37,000 157,000 Net income............................................................................... $293,000 * Footnote: On December 31, due to continued losses, the board of directors unanimously

approved management's plan to dispose of the Industrial Design Division. The sale is anticipated to be completed by June 30, 2021. The after-tax operating results for the current year are as follows: Revenues........................................................................... $ 30,000 Expenses............................................................................ 150,000 Net loss.............................................................................. $(120,000) The estimated after-tax loss relating to the disposal of the division is comprised of the following items: Proceeds from sale of assets.............................................. $61,000 Less legal and audit fees.................................................... 32,000 Less severance payments to staff...................................... 66,000 $37,000 Comprehensive income Sunshine Corporation had the following balances at December 31, 2020 (in thousands): preferred shares $3,012; common shares $4,718; contributed surplus $1,750; retained earnings $16,791; and accumulated other comprehensive income $514. During the year ended December 31, 2020, the company earned net income of $3,613,000, sold common shares of $30,000, and paid out dividends of $14,000 and $5,000 to preferred and common shareholders, respectively. Prepare a statement of changes in equity for the year ended December 31, 2020, as well as the shareholders’ equity section of the Sunshine Corporation balance sheet as at December 31, 2020. Solution 4-114 SUNSHINE CORPORATION Statement of Changes in Equity For the Year Ended December 31, 2020 (all amounts in thousands) Total Beginning Balance $26,785 Comprehensive Income: Net income 3,613

Comp. Preferred Common Contr. Income Shares Shares Surplus $3,012

$4,718 $1,750

$3,613

Dividends to shareholders: Preferred (14) Common (5) Issue of common shares 30 Ending Balance $30,409

Retained Earnings

Acc. Other Comp. Inc.

$16,791

$514

3,613

______ $3,012

30 ______ $4,748 $1,750

(14) (5) _______ $20,385

SUNSHINE CORPORATION Balance Sheet (Partial) December 31, 2020 (all amounts in thousands)

____ $514

Share capital: Preferred shares................................................................. Common shares................................................................. Total share capital.............................................................. Contributed surplus.................................................................. Total paid-in capital.................................................................. Retained earnings.................................................................... Accumulated other comprehensive income............................. Total shareholders’ equity..................................................

$ 3,012 4,748 7,760 1,750 9,510 20,385 514 $30,409

Cash basis Argent Inc. reported the following information for their 2020 fiscal year: Revenue on the income statement.................................... $114,000 Accounts receivable, Jan 1................................................. 3,200 Accounts receivable, Dec 31.............................................. 6,120 Unearned revenue, Jan 1.................................................... 1,200 Unearned revenue, Dec 31................................................ 1,840 Instructions Calculate the revenue for the year on a cash basis. Solution 4-118 $114,000 + $3,200 – $6,120 – $1,200 + $1,840 = $111,720. Ex. 4-119 Accrual basis Discover Inc. reported the following information for their 2020 fiscal year: Cash receipts from sales.................................................... $114,000 Accounts receivable, Jan 1................................................. 4,500 Accounts receivable, Dec 31.............................................. 7,400 Unearned revenue, Jan 1.................................................... 1,500 Unearned revenue, Dec 31................................................ 1,200 Instructions Calculate the revenue for the year on an accrual basis. Solution 4-119 $114,000 – $4,500 + $7,400 + $1,500 – $1,200 = $117,200...