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?