Financial Accounting: An Integrated Statements Approach, 2nd Edition

568 Chapter 12 Special Income and Investment Reporting Issues

ACCOUNTING APPLICATION PROBLEMS

MotoSport, Inc., produces and sells off-road motorcycles and jeeps. The following data were se-

lected from the records of MotoSport, Inc., for the current fiscal year ended October 31, 2006:

Advertising expense $ 64,000

Cost of merchandise sold 612,400

Depreciation expense—office equipment 7,000

Depreciation expense—store equipment 23,000

Gain on condemnation of land 36,400

Income tax:

Applicable to continuing operations 92,500

Applicable to loss from discontinued operations (reduction) 12,000

Applicable to gain on condemnation of land 13,400

Interest revenue 12,000

Loss from discontinued operations 31,000

Loss from fixed asset impairment 110,000

Miscellaneous administrative expense 12,000

Miscellaneous selling expense 5,500

Office salaries expense 75,000

Rent expense 24,000

Restructuring charge 14,000

Sales 1,350,000

Sales salaries expense 140,000

Store supplies expense 6,500

Unrealized loss (net of tax) on temporary investments 7,000

Instructions

Prepare a multiple-step income statement, concluding with a section for earnings per share

(rounded to the nearest cent) in the form illustrated in this chapter. There were 25,000 shares of

common stock (no preferred) outstanding throughout the year. Assume that the gain on the con-

demnation of land is an extraordinary item.

The following data were taken from the records of Surf’s Up Corporation for the year ended July

31, 2006:

Retained earnings and balance sheet data:

Accounts payable $ 9,500

Accounts receivable 276,050

Accumulated depreciation 3,050,000

Accumulated other comprehensive income 15,000

Allowance for doubtful accounts 11,500

Cash 115,500

Common stock, $10 par (500,000 shares authorized; 251,000 shares issued) 2,510,000

Deferred income taxes payable (current portion, $4,700) 65,700

Dividends:

Cash dividends for common stock 80,000

Cash dividends for preferred stock 100,000

Stock dividends for common stock 40,000

Dividends payable 25,000

Employee termination benefit obligation (current) 90,000

Equipment 11,819,050

Income tax payable 55,900

Interest receivable 2,500

Merchandise inventory (July 31, 2006), at lower of cost (FIFO) or market 551,500

Problem 12-1A

Income tax, income statement

Goals1, 2

Net income, $180,100

Problem 12-2A

Income statement, retained

earnings statement, balance

sheet

Goals1, 2, 3

Net income, $340,000