Question :
Short Problems
1.Wellman Inc., a computer manufacturer located in Texas, lost : 1241747
Short Problems
1.Wellman Inc., a computer manufacturer located in Texas, lost an uninsured building due to the infrequent and unusual occurrence of a hurricane. The building has a balance sheet value of $20,000 and will cost $165,000 to rebuild. Wellman’s income tax rate is 40%. Calculate the amount of any extraordinary loss that should be reported on Wellman’s income statement. Prepare a partial income statement that shows how the item will be presented.
2.The following information was taken from the 2015 financial records of Hopewell Company.
Debit
Credit
Operating revenues
187,000
Operating expenses
132,500
Gain on sale of short-term investments
15,200
Loss on sale of business segment
21,000
Income earned on disposed business segment
3,000
Extraordinary loss
5,000
Income due to change in accounting principle
12,500
Retained earnings (beginning balance)
72,000
Dividends declared
18,000
The company’s income tax rate is 35 percent, and the items above are treated identically for the financial reporting and tax purposes.
REQUIRED:
Prepare an income statement using this information.
3.Canter Company operates a boat rental service in North Carolina. The company was involved in the following transactions and events during 2015:
1. The supplies, gasoline, and other maintenance item costs incurred associated with the rentals are $420,000.
2. Provided rental boats to customers during 2015 for total revenue of $880,000.
3. Damage by anearthquake to one of Canter’s uninsured rental centers in Georgia, during 2015 was $440,000. Earthquakes have never occurred here before.
4. Sued by a rental customer that got his head caught in the ladder of a rental boat. The customer will probably win the suit that is estimated at $80,000. Lawsuits are common in the rental industry.
5. Switched from double-declining-balance to straight-line depreciation. Effect was to decrease the accumulated depreciation account by $58,000.
6. Declared and paid $25,000 in dividends.
For each transaction, state in which section of the income statement it should be reported and give the dollar amount that should be reported. State whether each reporting amount is added or subtracted on the income statement and if the specific line item on the income statement is reported net of taxes. Canter’s income tax rate is 30%.
4.The following are the revenue and expense accounts for the year ending August 31, 2015, for Hammer Corporation:
Sales revenue
$70,000
Interest revenue
3,000
Interest expense
2,000
Gain from sale of land
8,000
Cost of goods sold
45,000
Administrative expense
9,000
Extraordinary gain
3,500
Income tax expense
4,200
A.Calculate the amount of gross profit for Hammer Corporation for the year ending August 31, 2015.
B.How much should be reported as ‘Other Revenues’?
5.Badger, Inc. is planning a major stock issuance in early 2015. During 2014, the company reported net income from operations of $530,000 before taxes. The items below describe major events that occurred during 2014.
1.A $52,000 gain was recognized on the sale of a subsidiary
2. Inventory was written down by $21,000 due to obsolescence
3.A forced government takeover of a company plant in India that had a book value of $320,000
4.A $31,000 gain was recognized due to the adoption of a new FASB statement
The company’s tax rate is 30 percent.
A. Which items should not be reported as a component of income from continuing operations?
B.Suppose management decided to exclude all of the above items from income from continuing operations. What effect might this have on investor and creditor decisions?
