Acc421 Intermediate Accounting: Week 3 Assignments (E4-6, E4-16, E18-4, E18-5)

Acc421 Intermediate Accounting

Week 3 Assignments (E4-6, E4-16, E18-4, E18-5)

E4-6 (Multiple-step and Single-step)

The accountant of Whitney Houston Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2007.

Rental revenue 29,000

Interest on notes payable 18,000

Market appreciation on land above cost 31,000

Wages and salaries—sales 114,800

Materials and supplies—sales 17,600

Income tax 37,400

Wages and salaries—administrative 135,900

Other administrative expenses 51,700

Cost of goods sold 496,000

Net sales 980,000

Depreciation on plant assets (70% selling, 30% administrative) 65,000

Cash dividends declared 16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions

(a) Prepare a multiple-step income statement.

(b) Prepare a single-step income statement.

(c) Which format do you prefer? Discuss.



E4-16 Various Reporting Formats

The following information was taken from the records of Roland Carlson Inc. for the year 2007. Income tax applicable to income from continuing operations $187,000; income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on available-for-sale securities $15,000.

Extraordinary gain 95,000 Cash dividends declared 150,000

Loss on discontinued operations 75,000 Retained earnings January 1, 2010 600,000

Administrative expenses 240,000 Cost of goods sold 850,000

Rent revenue 40,000 Selling expenses 300,000

Extraordinary loss 60,000 Sales 1,900,000

Shares outstanding during 2007 were 100,000.

Instructions

(a) Prepare a single-step income statement for 2007.

(b) Prepare a retained earnings statement for 2007.

(c) Show how comprehensive income is reported using the second income statement format.



E18-4 Recognition of Profit on Long-Term Contracts

During 2007 Pierson Company started a construction job with a contract price of $1,500,000. The job was completed in 2009. The following information is available.

2007 2008 2009

Costs incurred to date 400,000 935,000 1,070,000

Estimated costs to complete 600,000 165,000 -

Billingsto date 300,000 900,000 1,500,000

Collections to date 270,000 810,000 1,425,000

Instructions

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used.

(b) Prepare all necessary journal entries for 2008.

(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.



E18-5 Analysis of Percentage-of-Completion Financial Statements

In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.

Balance Sheet

Accounts receivable—construction contract billings 21,500

Construction in progress 65,000

Less: Contract billings 61,500

Cost of uncompleted contract in excess of billings 3,500

Income Statement

Income (before tax) on the contract recognized in 2007 18,200

Instructions

(a) How much cash was collected in 2007 on this contract?

(b) What was the initial estimated total income before tax on this contract
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