Chapter4
EXERCISE 4-3 (20–25 minutes)
LeRoi Jones Inc.
Income Statement
For Year Ended December 31, 2007
Revenues
Net sales ($1,250,000(b) – $17,000)
$1,233,000
Expenses
Cost of goods sold
500,000 Selling expenses
400,000(c) Administrative expenses
100,000(a) Interest expense
20,000 Total expenses
1,020,000
Income before income tax
213,000 Income tax
63,900
Net income
$ 149,100
Earnings per share
$ 7.46*
*Rounded
EXERCISE 4-3 (Continued)
Determination of amounts
(a) Administrative expenses
=
20% of cost of good sold
=
20% of $500,000
=
$100,000
(b) Gross sales X 8%
=
administrative expenses
=
$100,000 ÷ 8%
=
$1,250,000
(c) Selling expenses
=
four times administrative expenses.
(operating expenses consist of selling
and administrative expenses; since
selling expenses are 4/5 of operating
expenses, selling expenses are 4
times administrative expenses.)
=
4 X $100,000
=
$400,000
Earnings per share $7.46 ($149,100 ÷ 20,000)
Note: An alternative income statement format is to show income tax a part of expenses, and not as a separate item. In this case, total expenses are $1,083,900.
EXERCISE 4-16 (30–35 minutes)
(a) Roland Carlson Inc.
Income Statement
For the Year Ended December 31, 2007
Revenues
Sales
$1,900,000
Rent revenue
40,000 Total revenues
1,940,000
Expenses
Cost of goods sold
850,000 Selling expenses
300,000 Administrative expenses
240,000 Total expenses
$1,390,000
EXERCISE 4-16 (Continued)
Income from continuing operations before income tax
550,000 Income tax
187,000
Income from continuing operations
363,000
Discontinued operations
Loss on discontinued operations
$75,000
Less: Applicable income tax reduction 25,500 49,500
Income before
LeRoi Jones Inc.
Income Statement
For Year Ended December 31, 2007
Revenues
Net sales ($1,250,000(b) – $17,000)
$1,233,000
Expenses
Cost of goods sold
500,000 Selling expenses
400,000(c) Administrative expenses
100,000(a) Interest expense
20,000 Total expenses
1,020,000
Income before income tax
213,000 Income tax
63,900
Net income
$ 149,100
Earnings per share
$ 7.46*
*Rounded
EXERCISE 4-3 (Continued)
Determination of amounts
(a) Administrative expenses
=
20% of cost of good sold
=
20% of $500,000
=
$100,000
(b) Gross sales X 8%
=
administrative expenses
=
$100,000 ÷ 8%
=
$1,250,000
(c) Selling expenses
=
four times administrative expenses.
(operating expenses consist of selling
and administrative expenses; since
selling expenses are 4/5 of operating
expenses, selling expenses are 4
times administrative expenses.)
=
4 X $100,000
=
$400,000
Earnings per share $7.46 ($149,100 ÷ 20,000)
Note: An alternative income statement format is to show income tax a part of expenses, and not as a separate item. In this case, total expenses are $1,083,900.
EXERCISE 4-16 (30–35 minutes)
(a) Roland Carlson Inc.
Income Statement
For the Year Ended December 31, 2007
Revenues
Sales
$1,900,000
Rent revenue
40,000 Total revenues
1,940,000
Expenses
Cost of goods sold
850,000 Selling expenses
300,000 Administrative expenses
240,000 Total expenses
$1,390,000
EXERCISE 4-16 (Continued)
Income from continuing operations before income tax
550,000 Income tax
187,000
Income from continuing operations
363,000
Discontinued operations
Loss on discontinued operations
$75,000
Less: Applicable income tax reduction 25,500 49,500
Income before