BE Chapter 4

8/3/2019 BE Chapter 4

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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

Mega Inc.Income StatementFor the Year Ended December 31, 2010

RevenuesSales $1,100,000

ExpensesCost of goods sold $450,000Wages expense 270,000

Other expenses 20,000Income tax expense 115,000

Total expenses 855,000

Net income $245,000

Earnings per share $2.45


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BRIEF EXERCISE 4-2

Taylor CorporationIncome Statement

For the Year Ended December 31, 2010

RevenuesNet sales $2,780,000Investment revenue __103,000

Total revenues 2,883,000

ExpensesChange in inventories 380,000Materials consumed 1,810,000

Wages 317,000Advertising and promotion 60,000Entertainment 37,000Rent 48,000Utilities 21,000Interest 76,000Income tax expense 40,000

Total expenses 2,789,000

Net income $ 94,000Earnings per share $9.40


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BIEF EXERCISE 4-3

Taylor CorporationIncome Statement

For the Year Ended December 31, 2010

Net sales $2,780,000Cost of goods sold 2,190,000Gross profit 590,000Operating expenses

Selling expenses $272,000Administrative expenses 211,000 483,000

Income from operations 107,000Other revenues and gains

Investment revenue 103,000210,000Other expenses and losses

Interest expense 76,000Income before income tax 134,000Income tax expense 40,000Net income $ 94,000

Earnings per share $9.40


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BRIEF EXERCISE 4-6

In order to qualify for separate presentation as discontinuedoperations on the income statement, the entity must have madea strategic shift in operations. In accordance with IFRS 5, thedefinition of discontinued operations is based on operatingsegments as defined in IFRS 8. This determination is based onhow the chief operating decision maker makes decisions aboutallocating resources and assessing performance. A key elementis that the group of assets generates its own net cash flows andis operationally distinct. Selling the corporate owned stores tofranchisees would qualify for discontinued operations treatment.The stores generate their own cash flows and are operationallydistinct from the franchised restaurants.

However, the franchisor is still involved with the franchisedstores as they continue to provide product to them as well asadvertising and support. The cash flows of the franchisor arestill affected by those of the franchisee since the franchisorcollects monthly fees based on revenues. See CICA HandbookSection 3475 (examples) for additional discussion as it relates toAccounting Standards for Private Enterprise which is essentiallyconverged with the International Standard.


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BRIEF EXERCISE 4-7

Your Pal Postcard Company Limited

Statement of Shareholders EquityFor the Year Ended December 31, 2010

TotalCommonShares

Compre-hensiveIncome

RetainedEarnings

Beginning balance $1,750,000 $600,000 $900,000

Comprehensive income

Net income* 50,000 50,000 50,000Other comprehensiveincome

Dividends (300,000)Unrealized holding loss (60,000) _______ (60,000) _______

Comprehensive income ($ 10,000)Ending balance $1,440,000 $600,000 $650,00

0

*($900,000 $750,000 $100,000).


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BRIEF EXERCISE 4-8

The number of common shares outstanding at December 31, 2010 is44,000 (40,000 8,000 + 12,000)

Weighted average number of shares:

January 1 April 1 40,000 X 3/12 = 10,000April 1 August 31 32,000 X 5/12 = 13,333August 31 Dec. 31 44,000 X 4/12 = 14,667

38,000

BRIEF EXERCISE 4-9

$1,600,000 $400,000= $10.00 per share

120,000

BRIEF EXERCISE 4-10

Global CorporationRetained Earnings Statement

For the Year Ended December 31, 2010Balance, January 1 $ 529,000Add: Net income 1,646,000

2,175,000Less: Cash dividends 660,000Balance, December 31 $1,515,000


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*BRIEF EXERCISE 4-13

(a)

Cash Receiptsfrom Customers

- Beginning accountsreceivable

+ Ending accountsreceivable

= Revenue onaccrual basis

$152,000 - 13,000 + 18,600 = $157,600

(b)

Cash payments

for operatingexpenses

+ Beginning prepaid

expenses- Ending prepaid

expenses

= Operating

expenses onaccrual basis

$97,000 + 17,500 - 23,200 = $91,300

BE Chapter 4

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