Solutions to first assignment:

E1-6

Campus Connections

Income statement

For the month ended January 31, 2014

Sales (173,000 + 3,500) 176.500

Less: cost of sales (77,850)

Gross profit 98,650

Less: operating expenses:

Salaries, supplies, advertising 45,200

Utility expense 1,100 (46,300)

Operating income 52,350

Since there is no nonoperating items and no income tax expense, pretax income equals net income.

E1-7

Walgreen Company

Income statement

For the year ended August 31, 2011

Net sales 72,184

Less: Cost of sales (51,692)

Gross profit 20,492

Less: operating expenses (16,561)

Operating income 3,931

Add: other income 434

Less: interest expense (71)

Pretax income 4,294

LESS; provision for income taxes (1,580)

Net income (net earnings) 2,714

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E1-8

Neighborhood Reality

Income statement

For the year ended 12/31/2015

Commission revenue 167,700

Rental revenue 20,000

Total operating revenue 187,700

Less: operating expenses:

Salaries exp 62,740

Commission exp 35,330

Patrol tax exp 2,500

Rent exp (2,475* 12/11) 2,700

Utilities exp 1,600

Promotion exp 7,750

Miscellaneous exp 500 (13,120)

Operating income 74,580

Less: income tax exp (24,400)

Net income 50,180

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P5-5:

Aeropostate Inc

Income Statement

For the year ended March 31

Net sales $2,342,260

Less: Cost of sales (1,733,916)

Gross profit 608,344

Less: Selling and administrative expenses (494,829)

Operating Income 113,515

Less: Interest expense (417)

Pretax income 113,098

Less: tax expense (43,583)

Net income 69,515

Gross profit ratio = 608344 / 2,342,260 = 25.97%

E-12 Page 33

Client’s Stonework Corporation

SHE statement

For the year ended 12/31/2014

CS APIC RE Total

Beg. Balance 100,000 0 24,400 124400

Net income 58,000 58,000

Dividends declared (19,000) (19,000)

---------- --------- ----------- ------------

Ending balance 100,000 0 63,000 163400

RE at end of 2013 and beginning of 2014= 0 +40,400 – 16,000 = 24400

NO use for total assets

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P5-4:

Parnard Corporation

SHE Statement

For the year ended December 31, 2015

CS APIC RE Total

Beg. Balance 82,500 13,000 44,000 139,500

Issuing shares 20,000 15,000 35,000

Net income 37,000 37,000

Dividends declared (11,000) (11,000)

Ending balance 102,500 28,000 70,000 202,500

Issuing shares:

Additional CS = 1,000 * $20 = 20,000

Additional PIC = 1,000 * (35-20) = 15,000

Dividends declared = 5,500 * $2= 11,000

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Extra Case: AP5-2 page 267

MESA Industries

SHE statement

For the year ended 12/31/2015

CS APIC RE Total

Beg. Balance 105,000 9,000 48,000 162,000

Shares issued 22,500 16,500 39,000

Net income 46,000 46,000

Dividends declared (7,000) (7,000)

------------ ------------- ----------- ------------

Ending balance 127,500 25,500 87,000 240,000

Par value for shares issued= 1,500 * $15 =$22,500

APIC for shares issued= 1,500 * (26-15) = $ 16,500

Dividends declared= 7,000 shares at beginning * $1= $7,000