E4-5 (LO 2,3) Multiple-Step and Single-Step Statements

Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting
an income statement in a multiple-step versus a single-step format. The discussion involves
the following 2017 information related to P. Bride Company ($000 omitted).

Administrative expense
Officers’ salaries $ 4,900
Depreciation of office furniture and equipment 3,960
Cost of goods sold 60,570
Rent revenue 17,230
Selling expense
Delivery expense 2,690
Sales commissions 7,980
Depreciation of sales equipment 6,480
Sales revenue 96,500
Income tax 9,070
Interest expense 1,860
Instructions
(a) Prepare an income statement for the year 2017 using the multiple-step form. Common
shares outstanding for 2017 total 40,550 (000 omitted).

P. BRIDE COMPANY
Income Statement
For the Year Ended December 31, 2017
(In thousands, except earnings per share)

Operating Expenses

Other Revenues and Gains

Other Expenses and Losses

(b) Prepare an income statement for the year 2017 using the single-step form.

P. BRIDE COMPANY
Income Statement
For the Year Ended December 31, 2017
(In thousands, except earnings per share)
Revenues

Expenses

(c) Which one do you prefer? Discuss.

E4-12 (LO 6) Retained Earnings Statement
Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years
of operations, Zambrano reported net income and declared dividends as follows.

Net Income Dividends Declared

2014 $ 40,000 $ -
2015 125,000 50,000
2016 160,000 50,000

The following information relates to 2017.

Income before income tax $ 240,000
Prior period adjustment:
understatement of 2015 depreciation expense (before taxes) 25,000
Cumulative decrease in income from change in inventory methods,
(before taxes) 35,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2018) 100,000
Effective tax rate 40%

Instructions:
(a) Prepare a 2017 retained earnings statement for Eddie Zambrano Corporation.

Calculation of net income for 2017:

Calculation of beginning retained earnings:

 EDDIE ZAMBRANO CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2017

(b) Assume Eddie Zambrano Corporation restricted retained earnings in the amount of
$70,000 on December 31, 2017. After this action, what would Zambrano report as total
retained earnings in its December 31, 2017, balance sheet?

Retained earnings: Appropriated

Unappropriated
Total
P4-2 (LO 3, 4, 6) Single-Step Statement, Retained Earnings Statement, Periodic Inventory

Presented below is the trial balance of Thompson Corporation at December 31, 2017.

THOMPSON CORPORATION
Trial Balance
December 31, 2017
Debit Credit
Purchase Discounts $ 10,000
Cash $ 189,700
Accounts Receivable 105,000
Rent Revenue 18,000
Retained Earnings 160,000
Salaries and Wages Payable 18,000
Sales Revenue 1,100,000
Notes Receivable 110,000
Accounts Payable 49,000
Accumulated Depreciation—Equipment 28,000
Sales Discounts 14,500
Sales Returns and Allowances 17,500
Notes Payable 70,000
Selling Expenses 232,000
Administrative Expenses 99,000
Common Stock 300,000
Income Tax Expense 53,900
Cash Dividends 45,000
Allowance for Doubtful Accounts 5,000
Supplies 14,000
Freight-In 20,000
Land 70,000
Equipment 140,000
Bonds Payable 100,000
Gain on Sale of Land 30,000
Accumulated Depreciation - Buildings 19,600
Inventory 89,000
Buildings 98,000
Purchases 610,000
Totals $ 1,907,600 $ 1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of $64,000;

thus, cost of goods sold for 2017 is $645,000.
Instructions
Prepare a single-step income statement and a retained earnings statement. Assume that the
only changes in retained earnings during the current year were from net income and dividends.
Thirty thousand shares of common stock were outstanding the entire year.

THOMPSON CORPORATION
Income Statement
For the Year Ended December 31, 2017
Revenues

Expenses

THOMPSON CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2017
P4-3 (LO 3,4) Various Income-Related Items
Maher Inc. reported income from continuing operations before taxes during 2017 of
$790,000. Additional transactions occurring in 2017 but not considered in the $790,000 are
as follows.

1. The corporation experienced an uninsured flood loss in the amount of $90,000

during the year.
2. At the beginning of 2015, the corporation purchased a machine for $54,000
(salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used
straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage
value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).

4. When its president died, the corporation realized $150,000 from an insurance
policy. The cash surrender value of this policy had been carried on the books as an
investment in the amount of $46,000 (the gain is nontaxable).
5.
The corporation disposed of its recreational division at a loss of $115,000 before
taxes. Assume that this transaction meets the criteria for discontinued operations.

6. The corporation decided to change its method of inventory pricing from average-
cost to the FIFO method. The effect of this change on prior years is to increase
2015 income by $60,000 and decrease 2016 income by $20,000 before taxes. The
FIFO method has been used for 2017. The tax rate on these items is 30%.

Instructions:
Prepare an income statement for the year 2017 starting with income from continuing
operations before taxes. Compute earnings per share as it should be shown on the face of
the income statement. Common shares outstanding for the year are 120,000 shares.
(Assume a tax rate of 30% on all items, unless indicated otherwise.)
Computation of income from continuing operations before taxes:
As previously stated $ 790,000
Computation of income tax:

MAHER INC.
Income Statement (Partial)
For the Year Ended December 31, 2017

Per share of common stock: