Financial Accounting: An Integrated Statements Approach, 2nd Edition

(Greg DeLong) #1

Solution


558 Chapter 12 Special Income and Investment Reporting Issues


Sales $1,252,500
Cost of merchandise sold 750,000
Gross profit $ 502,500
Operating expenses:
Selling expenses $182,100
Administrative expenses 82,200
Fixed asset impairment 115,000
Restructuring charge 40,000
Total operating expenses 419,300
Income from operations $ 83,200
Other expense:
Interest expense 15,200
Income from continuing operations before income tax $ 68,000
Income tax expense 27,200
Income from continuing operations $ 40,800
Loss on discontinued operations $ 60,200
Less applicable income tax 24,000 36,200
Income before extraordinary item $ 4,600
Extraordinary item:
Gain on condemnation of land $ 25,000
Less applicable income tax 10,000 15,000
Net income $ 19,600
Earnings per share:
Income from continuing operations $4.08
Loss on discontinued operations 3.62
Income before extraordinary item $0.46
Extraordinary item 1.50
Net income $1.96

Botanica Greenhouses Inc.
Income Statement
For the Year Ended August 31, 2007

SELF-STUDY QUESTIONS Answers at end of chapter



  1. A material gain resulting from condemning land for pub-
    lic use would be reported on the income statement as:
    A. an extraordinary item.
    B. an other income item.
    C. revenue from sales.
    D. a change in estimate.

  2. Gwinnett Corporation’s temporary investments cost
    $100,000 and have a market value of $120,000 at the end
    of the accounting period. Assuming a tax rate of 40%,
    the difference between the cost and market value would
    be reported as a:


A. $12,000 realized gain.
B. $12,000 unrealized gain.
C. $20,000 realized gain.
D. $20,000 unrealized gain.


  1. Cisneros Corporation owns 75% of Harrell Inc. During
    the current year, Harrell Inc. reported net income of
    $150,000 and declared dividends of $40,000. How much
    would Cisneros Corporation increase Investment in
    Harrell Inc. Stock for the current year?
    A. $0 C. $82,500
    B. $30,000 D. $110,000

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