E4.4 (LO2) (Income Statement Presentation) The financial records of Dunbar Inc.

were
destroyed by fire at the end of 2019. Fortunately, the controller had kept the
following statistical data related to the income statement.

1. The beginning merchandise inventory was $92,000 and decreased 20% during the
current year.

2. Sales discounts amount to $17,000.

3. 30,000 ordinary shares were outstanding for the entire year.

4. Interest expense was $20,000.

5. The income tax rate is 30%.

6. Cost of goods sold amounts to $500,000.

7. Administrative expenses are 18% of 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 2019.

DUNBAR INC.

Income Statement

For Year Ended December 31, 2019

Net sales ($1,125,000(b) – $17,000) ........................................................... $1,108,000

Cost of goods sold.................................................................................... 500,000

Gross profit 608,000

Selling expenses .......................................................................................$360,000(c)

Administrative expenses .......................................................................... 90,000(a) 450,000

Income from operations ........................................................................... 158,000

Interest expense........................................................................................ 20,000

Income before income tax ........................................................................ 138,000

Income tax ................................................................................................. 41,400

Net income ................................................................................................ $ 96,600
Earnings per share (d) .............................................................................. $3.22*

*Rounded

Determination of amounts

(a) Administrative expenses = 18% of cost of goods sold

= 18% of $500,000

= $90,000

(b) Gross sales X 8% = administrative expenses

= $90,000 ÷ 8%

Gross sales = $1,125,000

(c) Selling expenses = four times administrative expenses.

(since selling expenses are 4/5

of selling and administrative

expenses, selling expenses are

4 times administrative expenses.)

= 4 X $90,000

= $360,000

(d) Earnings per share $3.22 ($96,600 ÷ 30,000)

Prepare an income statement; 100,000 ordinary shares were outstanding during the year.

EXERCISE 4.6 (30–35 minutes)

PARNEVIK ASA

Income Statement

For the Year Ended December 31, 2019

Revenue

Sales revenue .................................................................................... €1,280,000

Less: Sales returns and allowances ............................................... €150,000

 Sales discounts ................................................................. 45,000 195,000

Net sales revenue.............................................................................. 1,085,000

Cost of goods sold............................................................................ 621,000

Gross profit ............................................................................................. 464,000

Selling expenses ......................................................................... 194,000

Admin. and general expenses .................................................... 97,000 291,000

Other Income and Expense

Loss from impairment of plant assets ............................................. (120,000)

Interest revenue ............................................................................. 86,000 (34,000)

Income from operations .......................................................................... 139,000

Interest expense ............................................................................. 60,000

Income before income tax ....................................................................... 79,000

Income tax (€79,000 X .34) ............................................................. 26,860

Net income ............................................................................................... € 52,140

Earnings per share (€52,140 ÷ 100,000) ..................................................... €0.52*

*Rounded
(a) TAO LTD

Income Statement

For the Year Ended December 31, 2019

Sales

Net sales HK$1,200,000

Cost of goods sold ............................................................................. 780,000

Gross profit .............................................................................. 420,000

Selling expenses ................................................................................

HK$65,000

Administrative expenses ...................................................................

48,000 113,000

Other income and expense

 Dividend revenue .................................................................................
20,000

Interest revenue ...................................................................................

7,000

Write-off of inventory due to

obsolescence ....................................................................................
(80,000) (53,000)

Income from operations .......................................................................... 254,000

Interest expense ....................................................................................... 50,000

Income before income tax ....................................................... ............... 204,000

Income tax 69,360

Net income................................................................................................ HK$ 134,640

Earnings per share

Net income (HK$134,640 ÷ 60,000) .............................................. HK$2.24*

(b) TAO LTD

Retained Earnings Statement

For the Year Ended December 31, 2019

Retained earnings, Jan. 1, as reported............................................................................

HK$ 980,000

Correction for overstatement of net income in prior

period (depreciation error) (net of HK$13,600 tax) ...................................................... (26,400)

Retained earnings, Jan. 1, as adjusted ........................................................................... 953,600

Add: Net income ............................................................................................................. 134,640

1,088,240

Less: Dividends declared ................................................................................................ 45,000

Retained earnings, Dec. 31 ..............................................................................................

HK$1,043,240
E4.8 (LO2, 3, 4) (Income Statement, EPS) Presented below are selected ledger accounts of McGraw
Corporation as of December 31, 2019.
EXERCISE 4.8 (15–20 minutes)

(a) Net sales ................................................................................................ € 540,000

Less: Cost of goods sold .................................................................... (260,000)

Administrative expenses ....................................................... (100,000)

Selling expenses .................................................................... (80,000)

Discontinued operations-loss ............................................... (40,000)

60,000

Income tax (€60,000 X .30) ..................................................... 18,000

Net income ............................................................................................ € 42,000

(b) Income before income tax .................................................................... €100,000*

Income tax (€100,000 X .30) .................................................................. 30,000

Income from continuing operations .................................................... 70,000

Discontinued operations, less applicable

income tax of €12,000 ........................................................................ (28,000)

Net income ............................................................................................ € 42,000

*€60,000 + €40,000

Earnings per share:

Income from continuing operations

(€70,000 ÷ 20,000) .......................................................................... € 3.50

Loss on discontinued operations, net of tax .................................. (1.40)

Net income (€42,000 ÷ 20,000) € 2.10

P4.3 (LO2, 3, 5) (Income Statement, Retained Earnings, Periodic Inventory) Presented below is the trial
balance of Thompson Ltd. at December 31, 2019.
 PROBLEM 4.3

THOMPSON LTD

Income Statement

For the Year Ended December 31, 2019

Net sales (£1,100,000 – £14,500 – £17,500) .................................... £1,068,000

Cost of goods sold* ........................................................................ 645,000

Gross profit 423,000

Selling expenses ............................................................................. £232,000

Administrative expenses ................................................................ 99,000 331,000

Other income and expense

Gain on sale of land ............................................................. 30,000

Rent revenue ........................................................................ 18,000 48,000

Income before income tax .............................................................. 140,000

Income tax ............................................................................ 53,900

Net income ....................................................................................... £ 86,100

Earnings per share (£86,100 ÷ 30,000) ........................................... £2.87

*Cost of goods sold: Can be verified as follows:

Merchandise inventory, Jan. 1 ....................................................... £ 89,000

Purchases £610,000

Less: Purchase discounts ............................................................. 10,000

 Net purchases ................................................................................. 600,000

Add: Freight-in .............................................................................. 20,000 620,000

Merchandise available for sale....................................................... 709,000

Less: Merchandise inventory, Dec. 31.......................................... 64,000

Cost of goods sold ....................................................................... £ 645,000

PROBLEM 4.3 (Continued)

THOMPSON LTD

Retained Earnings Statement

For the Year Ended December 31, 2019

Retained earnings, January 1 .......................................................................... £160,000

Add: Net income .......................................................................................... 86,100

246,100

Less: Cash dividends ...................................................................................... 45,000

Retained earnings, December 31 ..................................................................... £201,100

LO: 2,3,5, Bloom: AP, Difficulty: Simple, Time: 25-30, AACSB: Analytic, AICPA BB: Critical
Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
SOAL LATIHAN (HAL 1)

E4.4 (LO2) (Income Statement Presentation) The financial records of Dunbar Inc. were
destroyed by fire at the end of 2019. Fortunately, the controller had kept the
following statistical data related to the income statement.

1. The beginning merchandise inventory was $92,000 and decreased 20% during the
current year.

2. Sales discounts amount to $17,000.

3. 30,000 ordinary shares were outstanding for the entire year.

4. Interest expense was $20,000.

5. The income tax rate is 30%.

6. Cost of goods sold amounts to $500,000.

7. Administrative expenses are 18% of 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 2019.

Prepare an income statement; 100,000 ordinary shares were outstanding during the year.
SOAL LATIHAN (HAL 2)

E4.8 (LO2, 3, 4) (Income Statement, EPS) Presented below are selected ledger accounts of McGraw
Corporation as of December 31, 2019.
SOAL LATIHAN (HAL 3)

P4.3 (LO2, 3, 5) (Income Statement, Retained Earnings, Periodic Inventory) Presented below is the trial
balance of Thompson Ltd. at December 31, 2019.