Problem 4-7 Income statement presentation; statement of comprehensive income; un
ID: 2650510 • Letter: P
Question
Problem 4-7 Income statement presentation; statement of comprehensive income; unusual items [LO4-1, 4-3, 4-4, 4-5, 4-6, 4-7]
The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2013 ($ in 000s): sales revenue, $18,100; cost of goods sold, $7,600; selling expenses, $1,440; general and administrative expenses, $940; interest revenue, $200; interest expense, $300. Income taxes have not yet been accrued. The company’s income tax rate is 40% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2013 ($ in 000s). All transactions are material in amount.
Investments were sold during the year at a loss of $360. Schembri also had unrealized gains of $500 for the year on investments.
An earthquake destroyed a warehouse causing $1,400 in damages. The event is considered to be unusual and infrequent.
During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $700 in 2013 prior to the sale, and its assets were sold at a gain of $1,680.
In 2013, the company’s accountant discovered that depreciation expense in 2012 for the office building was understated by $340.
Prepare Schembri’s combined statement of income and comprehensive income for 2013, including basic earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2013. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands except earnings per share. Round EPS answers to 2 decimal places.)
rev: 02_18_2014_QC_45455
The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2013 ($ in 000s): sales revenue, $18,100; cost of goods sold, $7,600; selling expenses, $1,440; general and administrative expenses, $940; interest revenue, $200; interest expense, $300. Income taxes have not yet been accrued. The company’s income tax rate is 40% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2013 ($ in 000s). All transactions are material in amount.
Explanation / Answer
Combined satement of Income and comprehensive income:
13. Other comprehensive income:
The problem is related with preparation of income statement and determination of earning per share. Steps followed are described below:
1. Consider total sale. Deduct cost of goods sold. Balance is gross profit.
2. Deduct administrative and sellig expenses. Balance is net operating income before tax.
3. Now add net non operating income from interest. You will get net income.
4. Now deduct tax provision and ascertain income after tax.
5. Now consider understated comprehesive income or loss which are non recurrig in nature.
a. Investment loss is $360,000 and investment gain is $500,000. Thus et ivestment profit is $140,000.
b. Restructuring costs are $1,700,000. It is a loss.
c. Earthquake loss is $1,400,000.
d. Closed operating division has gain of $1,680,000 and operating loss of $700,000. Thus net gain is $980,000
e. Understated depreciation of previous year is a expenditure. Amount is $340,000
f. Foreign exchage fluctuation loss is $380,000.
Thus total comprehensive loss is $1,212,000
6. Deduct tax recovered on comprehensive loss and add it with et profit after tax. Final figure is the amount available for equity shareholders.
7. Finally divide it by number of equity shares to get earning per share.
Answer: EPS: $2.52
Details Amount Amount 1. Sales Revenue $18,100,000 2. Cost of goods sold $7,600,000 3. Gross profit [1 -2] $10,500,000 4. General Administrative expenses $940,000 5. Sales expenses $1,440,000 $2,380,000 6. Net profit from operating activities: $8,120,000 7. Interest Income $200,000 8. Iterest expenses $300,000 9. Net interest expenses -$100,000 10. Net adjusted profit [6+9] $8,020,000 11. Tax $3,280,000 12.Net adjusted profit after tax [10-11] $4,740,00013. Other comprehensive income:
Net Investment gain (500,000-360,000) $140,000 Restructuring cost -$170,000 Damage from Earthquake -$1,400,000 Net gain from sale of operating div. $980,000 Unadjusted depreciation $340,000 Foreign excage loss -$380,000 Net comprehensive loss -$2,020,000 Tax on comprehesive income $808,000 Net after tax comprehensive income -$1,212,000 Profit available for equity shareholder [12+13] $3,528,000 Number of shares at the beginining of the year 1,000,000 New shares issued 400,000 Total number of shares 1,400,000 Earning per share $2.52Related Questions
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