Chapter 4: 2 (page 179)
How can information based on past transactions be used to predict future cash flows?
Past transactions are useful in predicting important trends. It is also helpful in providing information regarding the future performance of cash flows.
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Question: At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.
10% cumulative preferred stock, \(100 par, 107,500 shares \)10,750,000
Common stock, \(5 par, 4,000,000 shares 20,000,000
During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.
Income from continuing operations before taxes \)23,650,000
Discontinued operations (loss before taxes) \(3,225,000
Preferred dividends declared \)1,075,000
Common dividends declared $2,200,000
Effective tax rate 35%
Instructions
Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)
Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?
Presented below is information related to Viel Company at December 31, 2017, the end of its first year of operations.
Sales revenue \(310,000
Cost of goods sold \)140,000
Selling and administrative expenses \(50,000
Gain on sale of plant assets \)30,000
Unrealized gain on available-for-sale investments \(10,000
Interest expense \)6,000
Loss on discontinued operations \(12,000
Dividends declared and paid \)5,000
Instructions
Compute the following: (a) income from operations, (b) net income, (c) comprehensive income, and (d) retained earnings balance at December 31, 2017. (Ignore income tax effects.)
Presented below are certain account balances of Paczki Products Co.
Rent revenue \(6,500 Sales discounts \)7,800
Interest expense \(12,700 Selling expenses \)99,400
Beginning retained earnings \(114,400 Sales revenue \)390,000
Ending retained earnings \(125,000Income tax expense \)31,000
Dividend revenue \(71,000Cost of goods sold \)184,000
Sales returns and allowances \(12,400Administrative expenses \)82,500
Allocation to non controlling interest $17,000
Instructions
From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.
Question: O’Malley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2017. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank.
O’MALLEY CORPORATION
INCOME STATEMENT
Sales revenue \(850,000
Dividends 32,300
Gain on recovery of insurance proceeds from
earthquake loss 38,500
920,800
Less:
Selling expenses \)101,100
Cost of goods sold 510,000
Advertising expense 13,700
Loss on obsolescence of inventories 34,000
Loss on discontinued operations 48,600
Administrative expense 73,400 780,800
Income before income tax 140,000
Income tax 56,000
Net income $84,000
Instructions
Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.
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