Chapter4

EXERCISE 4-3 (20–25 minutes)

LeRoi Jones Inc.
Income Statement
For Year Ended December 31, 2007
Revenues

Net sales ($1,250,000(b) – $17,000)

$1,233,000
Expenses

Cost of goods sold

500,000 Selling expenses

400,000(c) Administrative expenses

100,000(a) Interest expense

20,000 Total expenses

1,020,000
Income before income tax

213,000 Income tax

63,900
Net income

$ 149,100
Earnings per share

$ 7.46*
*Rounded
EXERCISE 4-3 (Continued)

Determination of amounts

(a) Administrative expenses
=
20% of cost of good sold

=
20% of $500,000

=
$100,000

(b) Gross sales X 8%
=
administrative expenses

=
$100,000 ÷ 8%

=
$1,250,000

(c) Selling expenses
=
four times administrative expenses.

(operating expenses consist of selling

and administrative expenses; since

selling expenses are 4/5 of operating

expenses, selling expenses are 4

times administrative expenses.)

=
4 X $100,000

=
$400,000

Earnings per share $7.46 ($149,100 ÷ 20,000)

Note: An alternative income statement format is to show income tax a part of expenses, and not as a separate item. In this case, total expenses are $1,083,900.
EXERCISE 4-16 (30–35 minutes)

(a) Roland Carlson Inc.
Income Statement
For the Year Ended December 31, 2007
Revenues

Sales

$1,900,000
Rent revenue

40,000 Total revenues

1,940,000

Expenses

Cost of goods sold

850,000 Selling expenses

300,000 Administrative expenses

240,000 Total expenses

$1,390,000
EXERCISE 4-16 (Continued)

Income from continuing operations before income tax

550,000 Income tax

187,000
Income from continuing operations

363,000
Discontinued operations

Loss on discontinued operations
$75,000

Less: Applicable income tax reduction 25,500 49,500
Income before