E4-5 (Multiple-Step and Single-Step) 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 2014 information related to P. Bride Company ($000 omitted).

Administrative expense Ofcers salaries $ 4,900

Depreciation of ofce 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 2014 using the multiple-step form. Common shares out-standing for 2014 total 40,550 (000 omitted).

(b) Prepare an income statement for the year 2014 using the single-step form.

(c) Which one do you prefer? Discuss.

E4-9 (Multiple-Step Statement with Retained Earnings) Presented below is information related to Ivan Calderon Corp. for the year 2014.

Net sales $1,300,000

Write-off of inventory due to obsolescence $ 80,000

Cost of goods sold 780,000

Depreciation expense omitted by accident in 2013 55,000

Selling expenses 65,000 Casualty loss (extraordinary item) before taxes 50,000

Administrative expenses 48,000

Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2013 980,000

Interest revenue 7,000 Effective tax rate of 34% on all items

Instructions (a) Prepare a multiple-step income statement for 2014. Assume that 60,000 shares of common stock are outstanding.

(b) Prepare a separate retained earnings statement for 2014.

E4-12 (Retained Earnings Statement) Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

Net Income Dividends Declared

2011 $ 40,000 $ 0

2012 125,000 50,000

2013 160,000 50,000

The following information relates to 2014. Income before income tax $240,000

Prior period adjustment: understatement of 2012 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, 2015) $100,000

Effective tax rate 40%

Instructions (a) Prepare a 2014 retained earnings statement for Eddie Zambrano Corporation.

(b) Assume Eddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2014. After this action, what would Zambrano report as total retained earnings in its December 31, 2014, balance sheet?

E4-14 (Change in Accounting Principle) Tim Mattke Company began operations in 2012 and for simplic-ity reasons, adopted weighted-average pricing for inventory. In 2014, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below.

Weighted-Year Average FIFO

2012 $370,000 $395,000

2013 390,000 430,000

2014 410,000 450,000

Instructions (a) What is Mattkes net income in 2014? Assume a 35% tax rate in all years.

(b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

(c) Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2014 income statement.

E4-15 (Comprehensive Income) Roxanne Carter Corporation reported the following for 2014: net sales $1,200,000; cost of goods sold $750,000; selling and administrative expenses $320,000; and an unrealized holding gain on available-for-sale securities $18,000.

Instructions Prepare a statement of comprehensive income, using (a) the one statement format, and (b) the two statement format. (Ignore income taxes and earnings per share.)

E4-16 (Comprehensive Income) C. Reither Co. reports the following information for 2014: sales revenue $700,000; cost of goods sold $500,000; operating expenses $80,000; and an unrealized holding loss on available-for-sale securities for 2014 of $60,000. It declared and paid a cash dividend of $10,000 in 2014.C. Reither Co. has January 1, 2014, balances in common stock $350,000; accumulated other comprehen-sive income $80,000; and retained earnings $90,000. It issued no stock during 2014.

Instructions: Prepare a statement of stockholders equity.

P4-3 (Irregular Items) Maher Inc. reported income from continuing operations before taxes during 2014 of $790,000. Additional transactions occurring in 2014 but not considered in the $790,000 are as follows.

1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000 during the year. The tax rate on this item is 46%.

2. At the beginning of 2012, 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 2012, 2013, and 2014 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 sur-render 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 2012 income by $60,000 and decrease 2013 income by $20,000 before taxes. The FIFO method has been used for 2014. The tax rate on these items is 40%.

Instructions: Prepare an income statement for the year 2014 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 out-standing for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

P4-7 (Income Statement, Irregular Items) Wade Corp. has 150,000 shares of common stock outstanding. In 2014, the company reports income from continuing operations before income tax of $1,210,000. Addi-tional transactions not considered in the $1,210,000 are as follows.

1. In 2014, Wade Corp. sold equipment for $40,000. The machine had originally cost $80,000 and had accumulated depreciation of $30,000. The gain or loss is considered ordinary.

2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $90,000 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes.

3. An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings.

4. The company had a gain of $125,000 on the condemnation of much of its property. The gain is taxed at a total effective rate of 40%. Assume that the transaction meets the requirements of an extraordinary item.

Instructions: Analyze the above information and prepare an income statement for the year 2014, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.)