Financial Accounting: An Integrated Statements Approach, 2nd Edition

Hazard Guard Insurance Company had 100,000 shares of $4, $100 par value preferred stock is-

sued and outstanding during 2006. In addition, the company had 500,000 shares of common

stock issued, of which 100,000 shares were held as Treasury stock. Hazard had $1,500,000 of in-

come before taxes and extraordinary items. Hazard experienced earthquake damage to a re-

gional sales office resulting in a before-tax extraordinary loss of $200,000. The income tax rate

was 40%. Determine the earnings per share disclosure for Hazard Guard.

The statement of comprehensive income for the years ended December 31, 2006 and 2007, plus

selected items from comparative balance sheets of McClain Wholesalers, Inc., are as follows:

McClain Wholesalers, Inc.

Statement of Comprehensive Income

For the Years Ended December 31, 2006 and 2007

2006 2007

Net income a. $36,000

Other comprehensive income (loss), net of tax b. 2,000

Total comprehensive income c. e.

McClain Wholesalers, Inc.

Selected Balance Sheet Items

December 31, 2005, 2006, and 2007

Dec. 31, Dec. 31, Dec. 31,

2005 2006 2007

Temporary investments in marketable

securities at fair market value, net of

taxes on unrealized gains or losses $ 26,000 d. f.

Retained earnings 140,000 $180,000 g.

Accumulated other comprehensive

income or (loss) (5,000) (8,000) h.

There were no dividends or purchases or sales of temporary investments. Other compre-

hensive items included only after-tax unrealized gains and losses on investments.

Determine the missing lettered items.

During 2006, Cosby Corporation held a portfolio of available-for-sale securities having a cost of

$260,000. There were no purchases or sales of investments during the year. The market values

after adjusting for the impact of taxes, at the beginning and end of the year, were $200,000 and

$240,000, respectively. The net income for 2006 was $145,000, and no dividends were paid dur-

ing the year. The Stockholders’ Equity section of the balance sheet was as follows on December

31, 2005:

Cosby Corporation

Stockholders’ Equity

December 31, 2005

Common stock $ 35,000

Paid-in capital in excess of par value 350,000

Retained earnings 435,000

Accumulated other comprehensive loss (60,000)

Total $760,000

a. Prepare a statement of comprehensive income for 2006.

b. Prepare the Stockholders’ Equity section of the balance sheet for December 31, 2006.

564 Chapter 12 Special Income and Investment Reporting Issues

Exercise 12-13

Earnings per share with

preferred stock

Goal 3

Exercise 12-14

Comprehensive income and

temporary investments

Goal 3

c. $37,000

Exercise 12-15

Comprehensive income and

temporary investments

Goal 3

a. Total comprehensive

income, $185,000