ch04_sol

InstructionsInstructions for the Microsoft Excel Templates by Rex A SchildhouseBe advised, the template workbooks and worksheets are not protected.Overtyping any data may remove it.

Extensive detail and information is contained within the help function of Microsoft Excel and in the provided text.You should enter your name, date, instructor's name, and course into the cells at the top of the page. This information will be printed on the top of each page if the template requires more than one page.Each template is set to print with File Name, Page # of # Page(s), the print date, and the print time to assist in assembly of multiple pages.

If more than one page is required by the template, manual page breaks have been set to provide consistent presentation.All of the cells have been correctly formatted for presentation and should not require any adjustment. For example, if the text requires one, two, or three significant digits in a presentation, the template has been set for that presentation in the appropriate cells.

In general, the yellow highlighted cells are the cells which work and effort should be presented. These entries may include date(s), account title(s), values, memorandum appropriate to the entry, or text answers to questions.

And information or data which may be required by the solution will be entered in cells with borders to help identify them.Where a yellow highlighted cell shows "Date" enter the appropriate date for that step of the challenge. This may be any date format that Microsoft Excel accepts. Some of these formats include "1/1/12", "01/01/12", and "01/01/2012." All of these will return January 01, 2012, in the format set in the template.

Where a yellow highlighted cell shows "Acct Nbr" enter the appropriate account number, provided in the template and in the text for that step of the challenge. This is entry may be a "Look to" formula to another cell where that information has been provided or previously entered.

Where a yellow highlighted cell shows "Account Title" enter the appropriate account title for that step of the challenge. This is a text entry and most of those cells are set for the proper indentation for that step. Frequently the chart of accounts appropriate to the challenge is provided and you can use the "look to" formula to reference the appropriate account title without typing it.

Check with your instructor to see if abbreviated account titles are acceptable. For example "A/R" for Accounts Receivable, "A/P" for Accounts Payable. If your instructor is using a comparison process between workbooks for grading, these abbreviates may not be acceptable.

Where a yellow highlighted cell shows titles such as "Values," "Amounts," or "Quantities" enter the appropriate numerical value for that step of the challenge. The cell is formatted for proper presentation of the entered information. If a dollar sign is appropriate, it should not be entered, Microsoft Excel will place it there through formatting. Commas and significant digits (decimals) are also set through formatting for common presentation. Since the formatting of the templates is not protected by any password, you may change any of the formatting found in the templates to meet your desires.

Where a yellow highlighted cell shows titles such as "Formula" you may enter the appropriate formula or enter a numerical value appropriate for that step of the challenge. Most of the values necessary for the appropriate formula are located on the template in cells with borders or in other yellow highlighted cells. The formula may be a simple "Look to" formula, an equal sign and a cell reference, "=E27" or more complex as "=E27*5," or something similar to the time-value-of-money formula. These are addressed in the tutorial text provided for Microsoft Excel.

Where a yellow highlighted cell shows "Text" enter the appropriate text for that step of the challenge. This may be a memorandum entry for a journal entry or a lengthy text answer discussing the results of an analysis of a company's financials. These titles can simply be typed over.

Where a yellow highlighted cell shows titles such as "Journal Number" or "Journ #" you should enter the appropriate number provided in the template and in the text for that step of the challenge. In general this will appear in instances such as "Record the following events in General Journal number six."

The print area is defined to fit onto 8 1/2" 11" sheets in portrait or landscape mode as required. Margins are generally set to no less than 1/2" so most printers can print them without a problem. If you printer cannot accept margins less than 1" you may have to reformat the margins through Page Setup.

The display may have "Freeze Pane" invoked so column titles remain visible during data entry. This can be removed by utilizing the View menu and selecting "Unfreeze Panes" under "Freeze Panes."

When negative values are required, enter them by starting with a minus sign, "-". Negative values may be shown as ($400) or -$400. Negative values in formulas can be created by putting a minus sign in front of the cell reference - "=E10*-E11" will return a negative value if both cells E10 and E11 contain positive values.

Microsoft Office and Microsoft Excel are products of, and copyrighted by,Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399

E4-4 Solution

Name:SolutionDate:Instructor:Course:Intermediate Accounting, 14th Edition by Kieso, Weygandt, and WarfieldPrimer on Using Excel in Accounting by Rex A Schildhouse

E4-4 (Multiple-Step and Single-Step) Two accountants for the firm of Allen 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 2012 information related to Webster Company ($000 omitted).

Administrative expensesOfficers' salaries$4,900Depreciation of office furniture and equipment3,960Cost of goods sold63,570Rent revenue17,230Selling expensesTransportation-out2,690Sales commissions7,980Depreciation of sales equipment6,480Sales96,500Income tax7,580Interest expense1,860

Instructions:(a) Prepare an income statement for the year 2012 using the multiple-step form. Common shares outstanding for 2012 total40,550(000 omitted).

WEBSTER COMPANYMulti-Step Income StatementFor the Year Ended December 31, 2012(In thousands, except earnings per share)

Sales$96,500Cost of goods sold63,570Gross profit32,930

Operating ExpensesSelling expensesSales commissions$7,980Depreciation of sales equipment6,480Transportation-out2,690$17,150Administrative expensesOfficers' salaries4,900Depreciation of office furniture and equipment3,9608,86026,010Income from operations6,920

Other Revenues and GainsRent revenue17,23024,150Other Expenses and LossesInterest expense1,860

Income before taxes22,290Income taxes7,580Net income14,710

Earnings per share ($14,710 net income / 40,550 shares)$0.36

(b) Prepare an income statement for the year 2012 using the single-step form. Common sharesoutstanding for 2012 total40,550(000 omitted).

WEBSTER COMPANYSingle-Step Income StatementFor the Year Ended December 31, 2012(In thousands, except earnings per share)

RevenuesNet sales$96,500Rental revenue17,230Total revenues113,730

ExpensesCost of goods sold$63,570Selling expenses17,150Administrative expenses8,860Interest expense1,860Total expenses$91,440

Income before taxes22,290Income taxes7,580Net income$14,710

Earnings per share ($14,710 net income / 40,550 shares)$0.36

(c) Which one do you prefer? Discuss.Single-step:1. Simplicity and conciseness.2.Probably better understood by users.3.Emphasis on total costs and expenses and net income.4. Does not imply priority of one revenue or expense over another.

Multiple-step:1.Provides more information through segregation of operating and non-operating items.2.Expenses are matched with related revenue.

Note to instructor: Students answers will vary due to the nature of the question; i.e., it asks for an opinion. However, the discussion supporting the answer should include the above points.

&F, &A, Page &P of &N, &D, &T

E4-4

Name:Date:Instructor:Course:Intermediate Accounting, 14th Edition by Kieso, Weygandt, and WarfieldPrimer on Using Excel in Accounting by Rex A Schildhouse

E4-4 (Multiple-Step and Single-Step) Two accountants for the firm of Allen 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 2012 information related to Webster Company ($000 omitted).

Administrative expensesOfficers' salaries$4,900Depreciation of office furniture and equipment3,960Cost of goods sold63,570Rent revenue17,230Selling expensesTransportation-out2,690Sales commissions7,980Depreciation of sales equipment6,480Sales96,500Income tax7,580Interest expense1,860

Instructions:(a) Prepare an income statement for the year 2012 using the multiple-step form. Common shares outstanding for 2012 total40,550(000 omitted).

WEBSTER COMPANYMulti-Step Income StatementFor the Year Ended December 31, 2012(In thousands, except earnings per share)

TitleAmountTitleAmountTitleFormula

Operating ExpensesTitleAccount TitleAmountAccount TitleAmountAccount TitleAmountFormulaTitleAccount TitleAmountAccount TitleAmountFormulaFormulaTitleFormula

Other Revenues and GainsAccount TitleAmountFormulaOther Expenses and LossesAccount TitleAmount

Income before taxesFormulaAccount TitleAmountNet incomeFormula

TitleFormula

(b) Prepare an income statement for the year 2012 using the single-step form. Common sharesoutstanding for 2012 total40,550(000 omitted).

WEBSTER COMPANYSingle-Step Income StatementFor the Year Ended December 31, 2012(In thousands, except earnings per share)

RevenuesNet salesAmountTitleAmountTotal revenuesFormula

ExpensesTitleAmountTitleAmountTitleAmountTitleAmountTotal expensesFormula

Income before taxesFormulaTitleAmountNet incomeFormula

TitleFormula

(c) Which one do you prefer? Discuss.Single-step:

Multiple-step:


E4-11 Solution


E4-11 (Retained Earnings Statement) McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.

YearNet incomeDividends declared2009$40,000$02010125,00050,0002011160,00050,000

The following information relates to 2012:Income before income taxes$220,000Prior period adjustment: Understatement of 2010 depreciation expense.(Before taxes)$25,000Cumulative decrease in income from change in inventory methods (before taxes)$45,000Dividends declared$100,000Of the dividends declared to date, the amount that will be paid on Jan 15, 2013 is:$25,000Effective tax rate40%

Instructions:(a) Prepare a 2012 retained earnings statement for McEntire Corporation.

McENTIRE CORPORATIONRetained Earnings StatementFor the Year Ended December 31, 2012Balance, January 1, as reported ($40,000 + $125,000 + $160,000 - $50,000 - $50,000)$225,000Correction for depreciation error (net of $25,000, - 40% tax rate or $10,000 tax)(15,000)Cumulative decrease in income from change in inventory methods (net of $45,000 - 40% tax or $18,000 tax)(27,000)

Balance, January 1, as adjusted183,000Add: Net income [$220,000 - ($220,000 * 40%)]132,000315,000Deduct dividends declared100,000Balance, December 31$215,000

(b) Assume McEntire Corp. restricted retained earnings in the amount of$70,000 on December 31, 2012. After this action, what would McEntire report as total retained earnings in its December 31, 2012, balance sheet?

Total retained earnings would still be reported as $215,000. A restriction does not affect total retained earnings; it merely labels part of the retained earnings as being unavailable for dividend distribution. Retained earnings would be reported as follows:

Retained earningsAppropriated$70,000Unappropriated145,000Total$215,000


E4-11


E4-11 (Retained Earnings Statement) McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.

YearNet incomeDividends declared2009$40,000$02010125,00050,0002011160,00050,000

The following information relates to 2012:Income before income taxes$220,000Prior period adjustment: Understatement of 2010 depreciation expense.(Before taxes)$25,000Cumulative decrease in income from change in inventory methods (before taxes)$45,000Dividends declared$100,000Of the dividends declared to date, the amount that will be paid on Jan 15, 2013 is:$25,000Effective tax rate40%

Instructions:(a) Prepare a 2012 retained earnings statement for McEntire Corporation.

McENTIRE CORPORATIONRetained Earnings StatementFor the Year Ended December 31, 2012Balance, January 1, as reportedAmountTitleAmountTitleAmount

TitleFormulaAdd: Net incomeAmountFormulaTitleAmountTitleFormula

(b) Assume McEntire Corp. restricted retained earnings in the amount of$70,000 on December 31, 2012. After this action, what would McEntire report as total retained earnings in its December 31, 2012, balance sheet?

Enter text answer here.

Retained earningsAppropriatedAmountUnappropriatedAmountTotalAmount


Problem 4-2 Solution


P4-2 (Single-Step Income, Retained Earnings, Periodic Inventory) Presented below is the trial balance of Thompson Corporation at December 31, 2012.

THOMPSON CORPORATIONTrial BalanceDecember 31, 2012DebitsCreditsPurchase Discounts$10,000Cash$189,700Accounts Receivable105,000Rent Revenue18,000Retained Earnings160,000Salaries and Wages Payable18,000Sales1,100,000Notes Receivable110,000Accounts Payable49,000Accumulated Depreciation-Equipment28,000Sales Discounts14,500Sales Returns17,500Notes Payable70,000Selling Expenses232,000Administrative Expenses99,000Common Stock300,000Income Tax Expense53,900Cash Dividends45,000Allowance for Doubtful Accounts5,000Supplies14,000Freight-in20,000Land70,000Equipment140,000Bonds Payable100,000Gain on Sale of Land30,000Accumulated Depreciation-Building19,600Inventory89,000Building98,000Purchases610,000Totals$1,907,600$1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of$64,000thus, cost of goods sold for 2012 is$645,000

Instructions:Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends.

30,000shares of common stock are outstanding the entire year.

THOMPSON CORPORATIONIncome StatementFor the Year Ended December 31, 2012RevenuesNet sales ($1,100,000 - $14,500 - $17,500)$1,068,000Gain on sale of land30,000Rent revenues18,000Total revenues$1,116,000

ExpensesCost of goods sold645,000Selling Expenses232,000Administrative Expenses99,000Total expenses976,000

Income before income taxes140,000Income Tax Expense53,900Net income$86,100

Earnings per share ($86,100 / 30,000 shares)$2.87

Computation of cost of goods sold:Inventory, Jan. 1$89,000Purchases$610,000Less: Purchase discounts10,000Net purchases600,000Add: Freight-in20,000620,000Inventory available for sale709,000Less: Inventory, Dec. 3164,000Cost of goods sold$645,000

THOMPSON CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2012

Retained earnings, January 1,$160,000Plus: Net income86,100246,100Less: Cash dividends45,000Retained earnings, December 31,$201,100


Problem 4-2


P4-2 (Single-Step Income, Retained Earnings, Periodic Inventory) Presented below is the trial balance of Thompson Corporation at December 31, 2012.

THOMPSON CORPORATIONTrial BalanceDecember 31, 2012DebitsCreditsPurchase Discounts$10,000Cash$189,700Accounts Receivable105,000Rent Revenue18,000Retained Earnings160,000Salaries and Wages Payable18,000Sales1,100,000Notes Receivable110,000Accounts Payable49,000Accumulated Depreciation-Equipment28,000Sales Discounts14,500Sales Returns17,500Notes Payable70,000Selling Expenses232,000Administrative Expenses99,000Common Stock300,000Income Tax Expense53,900Cash Dividends45,000Allowance for Doubtful Accounts5,000Supplies14,000Freight-in20,000Land70,000Equipment140,000Bonds Payable100,000Gain on Sale of Land30,000Accumulated Depreciation-Building19,600Inventory89,000Building98,000Purchases610,000Totals$1,907,600$1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of$64,000thus, cost of goods sold for 2012 is$645,000

Instructions:Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends.

30,000shares of common stock are outstanding the entire year.

THOMPSON CORPORATIONIncome StatementFor the Year Ended December 31, 2012RevenuesNet salesAmountTitleAmountTitleAmountTotal revenuesFormula

ExpensesTitleAmountTitleAmountTitleAmountTotal expensesFormula

Income before income taxesFormulaTitleAmountTitleFormula

Earnings per shareFormula

Computation of cost of goods sold:Merchandise inventory, Jan. 1AmountAccount TitleAmountAccount TitleAmountTitleFormulaAccount TitleAmountFormulaTitleAmountLess merchandise inventory, Dec. 31AmountCost of goods soldFormula

THOMPSON CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2012

Retained earnings January 1,AmountPlus net incomeAmountFormulaLess cash dividends declared and paidAmountRetained earnings, December 31,Formula


Problem 4-3 Solution


P4-3 (Irregular Items) Maher Inc. reported income from continuing operations before taxes during 2012 of $790,000. $790,000Additional transactions occurring in 2012 but not considered in the$790,000are as follows.1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000during the year. The tax rate on this item is46%2. At the beginning of 2010, the corporation purchased a machine for$54,000(salvage value of$9,000) that had a useful life of6years. The bookkeeper used straight-line depreciation for 2010, 2011, and 2012 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$150,000from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amountof$46,000(the gain is nontaxable).5. The corporation disposed of its recreational division at a loss of$115,000before 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 2010 income by $60,000and decrease 2011 income by$20,000before taxes. The FIFO method has been used for 2012. The tax rate on these items is40%

Instructions:Prepare an income statement for the year 2012 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 outstanding for the year are120,000shares. (Assume a tax rateof30%on all items, unless indicated otherwise.)

MAHER INC.Income Statement (Partial)For the Year Ended December 31, 2012Income from continuing operations before income tax (a)$838,500Income tax (b)220,350Income from continuing operations618,150Discontinued operationsLoss from disposal of recreational division$115,000Less: Applicable income tax reduction34,50080,500Income before extraordinary item537,650Extraordinary item:Major casualty loss90,000Less: Applicable income tax reduction41,40048,600Net income$489,050

Per share of common stock:Income from continuing operations ($618,150 / 120,000 shares) (Rounded)$5.15Discontinued operations, net of tax ($80,500 / 120,000 shares) (Rounded)(0.67)Income before extraordinary items4.48Extraordinary item, net of tax ($48,600 / 120,000 shares)(0.41)Net income ($489,050 120,000 shares)$4.08

(a) Computation of income from continued operations before taxes:As previously stated$790,000Loss on sale of securities(57,000)Gain on proceeds of life insurance policy ($150,000 $46,000)104,000Error in computation of depreciationAs computed ($54,000 6)9,000Corrected (($54,000 $9,000) 6)7,5001,500As restated$838,500

(b) Computation of income tax:Income from continuing operations before taxes$838,500Nontaxable income (gain on life insurance)(104,000)Taxable income734,500Tax rate30%Income tax expense$220,350

Note: No adjustment is needed for the inventory method change, since the new method is reported in 2012 income. The cumulative effect on prior years of retroactive application of the new inventory method will be recorded in retained earnings.


Problem 4-3


P4-3 (Irregular Items) Maher Inc. reported income from continuing operations before taxes during 2012 of $790,000. $790,000Additional transactions occurring in 2012 but not considered in the$790,000are as follows.1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000during the year. The tax rate on this item is46%2. At the beginning of 2010, the corporation purchased a machine for$54,000(salvage value of$9,000) that had a useful life of6years. The bookkeeper used straight-line depreciation for 2010, 2011, and 2012 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$150,000from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amountof$46,000(the gain is nontaxable).5. The corporation disposed of its recreational division at a loss of$115,000before 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 2010 income by $60,000and decrease 2011 income by$20,000before taxes. The FIFO method has been used for 2012. The tax rate on these items is40%

Instructions:Prepare an income statement for the year 2012 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 outstanding for the year are120,000shares. (Assume a tax rateof30%on all items, unless indicated otherwise.)

MAHER INC.Income Statement (Partial)For the Year Ended December 31, 2012TitleFormulaTitleFormulaIncome from continuing operationsFormulaTitleTitleAmountTitleFormulaFormulaTitleFormulaTitleTitleAmountTitleFormulaFormulaNet incomeFormula

Per share of common stock:TitleFormulaTitleFormulaTitleFormulaTitleFormulaTitleFormula

(a) Computation of income from continued operations before taxes:As previously statedAmountTitleAmountTitleFormulaTitleTitleFormulaTitleFormulaFormulaTitleFormula

(b) Computation of income tax:TitleFormulaTitleFormulaTitleFormulaTitlePercentageTitleFormula

Text as desired.


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