CHAPTER 4

BE4-2 Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2010.
Expenses for 2010 were: cost of goods sold $1,450,000; administrative expenses $212,000; selling
expenses $280,000; interest expense $45,000. Brisky’s tax rate is 30%. The corporation had 100,000
shares of common stock authorized and 70,000 shares issued and outstanding during 2010. Prepare a
single-step income statement for the year ended December 31, 2010.

BE4-4 Finley Corporation had income from continuing operations of $10,600,000 in 2010. During 2010, it
disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division
operated at a loss of $315,000 (net of tax) in 2010. Finley had 10,000,000 shares of common stock
outstanding during 2010. Prepare a partial income statement for Finley beginning with income from
continuing operations.

BE4-6 During 2010 Williamson Company changed from FIFO to weighted-average inventory pricing.
Pretax income in 2009 and 2008 (Williamson’s first year of operations) under FIFO was $160,000 and
$180,000, respectively. Pretax income using weighted-average pricing in the prior years would have
been $145,000 in 2009 and $170,000 in 2008. In 2010, Williamson Company reported pretax income
(using weighted-average pricing) of $180,000. Show comparative income statements for Williamson
Company, beginning with “Income before income tax,” as presented on the 2010 income statement.
(The tax rate in all years is 30%.)

BE4-8 In 2010, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred
stock dividends of $250,000. During 2010, Hollis had a weighted average of 190,000 common shares
outstanding. Compute Hollis’s 2010 earnings per share.

BE4-9 Portman Corporation has retained earnings of $675,000 at January 1, 2010. Net income during
2010 was $1,400,000, and cash dividends declared and paid during 2010 totaled $75,000. Prepare a
retained earnings statement for the year ended December 31, 2010. BE4-10 Using the information from
BE4-9, prepare a retained earnings statement for the year ended December 31, 2010. Assume an error
was discovered: land costing $80,000 (net of tax) was charged to repairs expense in 2007.

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, 2010.
 Sales $1,578,500

Sales discounts 31,150

Cost of goods sold 896,770

Sales salaries 56,260

Sales commissions 97,600

Travel expense—salespersons 28,930

Freight-out 21,400

Entertainment expense 14,820

Telephone and Internet expense—sales 9,030

Depreciation of sales equipment 4,980

Building expense—prorated to sales 6,200

Miscellaneous selling expenses 4,715

Office supplies used 3,450

Telephone and Internet expense— administration 2,820

Depreciation of office furniture and equipment $ 7,250

Real estate and other local taxes 7,320

Bad debt expense—selling 4,850

Building expense—prorated to administration 9,130

Miscellaneous office expenses 6,000

Sales returns 62,300

Dividends received 38,000

Bond interest expense 18,000

Income taxes 102,000

Depreciation understatement due to error—2007 (net of tax) 17,700

Dividends declared on preferred stock 9,000

Dividends declared on common stock 37,0000

The Retained Earnings account had a balance of $337,000 at July 1, 2009. There are 80,000 shares of
common stock outstanding. Instructions (a) Using the multiple-step form, prepare an income statement
and a retained earnings statement for the year ended June 30, 2010. (b) Using the single-step form,
prepare an income statement and a retained earnings statement for the year ended June 30, 2010.

CHAPTER 5

BE5-2 Koch Corporation’s adjusted trial balance contained the following asset accounts at December 31,
2010: Cash $7,000; Land $40,000; Patents $12,500; Accounts Receivable $90,000; Prepaid Insurance
$5,200; Inventory $30,000; Allowance for Doubtful Accounts $4,000; Trading Securities $11,000. Prepare
the current assets section of the balance sheet, listing the accounts in proper sequence.

BE5-4 Lowell Company’s December 31, 2010, trial balance includes the following accounts: Inventories
$120,000; Buildings $207,000; Accumulated Depreciation–Equipment $19,000; Equipment $190,000;
Land Held for Investment $46,000; Accumulated Depreciation–Buildings $45,000; Land $71,000;
Timberland $70,000. Prepare the property, plant, and equipment section of the balance sheet

BE5-6 Patrick Corporation’s adjusted trial balance contained the following asset accounts at December
31, 2010: Prepaid Rent $12,000; Goodwill $50,000; Franchise Fees Receivable $2,000; Franchises
$47,000; Patents $33,000; Trademarks $10,000. Prepare the intangible assets section of the balance
sheet

BE5-8 Included in Adams Company’s December 31, 2010, trial balance are the following accounts:
Accounts Payable $220,000; Pension Liability $375,000; Discount on Bonds Payable $29,000; Advances
from Customers $41,000; Bonds Payable $400,000; Wages Payable $27,000; Interest Payable $12,000;
Income Taxes Payable $29,000. Prepare the current liabilities section of the balance sheet.

BE5-10 Hawthorn Corporation’s adjusted trial balance contained the following accounts at December
31, 2010: Retained Earnings $120,000; Common Stock $750,000; Bonds Payable $100,000; Additional
Paid-in Capital $200,000; Goodwill $55,000; Accumulated Other Comprehensive Loss $150,000. Prepare
the stockholders’ equity section of the balance sheet

BE5-12 Keyser Beverage Company reported the following items in the most recent year.

Net income $40,000

Dividends paid 5,000

Increase in accounts receivable 10,000

Increase in accounts payable 7,000

Purchase of equipment (capital expenditure) 8,000

Depreciation expense 4,000

Issue of notes payable 20,000

Compute net cash provided by operating activities, the net change in cash during the year, and free cash
flow
BE5-14 Martinez Corporation engaged in the following cash transactions during 2010.

Sale of land and building $191,000

Purchase of treasury stock 40,000

Purchase of land 37,000

Payment of cash dividend 95,000

Purchase of equipment 53,000

Issuance of common stock 147,000

Retirement of bonds 100,000

Compute the net cash provided (used) by investing activities

BE5-16 Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported
net cash provided by operating activities of $400,000.

P5-6 (Preparation of a Statement of Cash Flows and a Balance Sheet) Lansbury Inc. had the balance
sheet shown on the following page at December 31, 2009

LANSBURY INC.

BALANCE SHEET

DECEMBER 31, 2009

Cash $ 20,000 Accounts payable $ 30,000

Accounts receivable 21,200 Long-term notes payable 41,000
Investments 32,000 Common stock 100,000
Plant assets (net) 81,000 Retained earnings 23,200
Land 40,000

$194,200 $194,200

During 2010

the following occurred.

1. Lansbury Inc. sold part of its investment portfolio for $15,000. This transaction resulted in a gain of
$3,400 for the firm. The company classifies its investments as available-for-sale.

2. A tract of land was purchased for $18,000 cash.

3. Long-term notes payable in the amount of $16,000 were retired before maturity by paying $16,000
cash.
4. An additional $20,000 in common stock was issued at par.

5. Dividends totalling $8,200 were declared and paid to stockholders.

6. Net income for 2010 was $32,000 after allowing for depreciation of $11,000.

7. Land was purchased through the issuance of $30,000 in bonds.

8. At December 31, 2010, Cash was $32,000, Accounts Receivable was $41,600, and Accounts Payable
remained at $30,000.

Instructions

(a) Prepare a statement of cash flows for 2010.

(b) Prepare an unclassified balance sheet as it would appear at December 31, 2010.

(c) How might the statement of cash flows help the user of the financial statements? Compute two cash
flow ratios.