Intermediate Accounting: Answers

BRIEF EXERCISE 4-1

STARR CO. | Income Statement | For the Year 2012 | Revenues | | | Sales revenue | | $540,000 | | | | Expenses | | | Cost of goods sold | | $330,000 | Salaries and wages expense | | 120,000 | Other operating expenses | | 10,000 | Income tax expense | | 25,000 | Total expenses | | 485,000 | | | | Net income | | $55,000 | | | | Earnings per share | | $0.55* |

*$55,000 ÷ 100,000 shares.

Note: The increase in value of the company reputation and the unrealized gain on the value of patents are not reported.

BRIEF EXERCISE 4-5

Income before income tax and extraordinary item | |
$6,300,000 | Income tax expense | | 1,890,000 | Income before extraordinary item | | 4,410,000 | Extraordinary item—loss from casualty | $770,000 | | Less: Applicable income tax | 231,000 | 539,000 | Net income | | $3,871,000 | Earnings per share | | | Income before extraordinary item | | $0.88* | Extraordinary loss, net of tax | | (0.11)* | Net income | | $0.77 |
*Rounded

BRIEF EXERCISE 4-10

PORTMAN CORPORATION | Retained Earnings Statement | For the Year Ended December 31, 2012 | Retained earnings, January 1, as reported | | $ 675,000 | Correction for overstatement of expenses in prior period (net of tax) | | 80,000 | Retained earnings, January 1, as adjusted | | 755,000 | Add: Net income | | 1,400,000 | | | 2,155,000 | Less: Cash dividends | | 75,000 | Retained earnings, December 31 | | $2,080,000 |

EXERCISE 4-1 Computation of net income | | | Change in assets: | $69,000 + $45,000 + $127,000 – $47,000 = $194,000 Increase | Change in liabilities: | $ 82,000 – $51,000 = 31,000 Increase | Change in stockholders’