Q8E. - Intermediate Accounting (Kieso)

Question

(Income Statement, EPS) Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2017.

Cash                                                                               $50,000

Administrative expenses                                            100,000

Selling expenses                                                             80,000

Net sales                                                                          540,000

Cost of goods sold                                                          210,000

Cash dividends declared (2017)                                     20,000

Cash dividends paid (2017)                                             15,000

Discontinued operations (loss before income taxes) 40,000

Depreciation expense, not recorded in 2016               30,000

Retained earnings, December 31, 2016                         90,000

Effective tax rate 30% 

Instructions

1. Compute net income for 2017.
2. Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 10,000 shares of common stock were outstanding during 2017.

Step-by-Step Solution

Answer

a) Net income = $77,000

b) Earnings per share = $7.7

Meaning of Cash dividend

A cash dividend refers to the distribution of the accumulated profits in cash to the company's common shareholders.

Computation of Net income for 2017

Tucker Corporation
Income Statement
For the Year Ended December 31, 2017
Net Sales	$540,000
Cost of Goods Sold	210,000
Gross Profits	330,000
Less:
Administrative expenses	100,000
Selling Expenses	80,000
Income from Continuing Operations before Income tax	150,000
Income tax expense	45,000
Income from continuing operations	105,000
Less: Discontinued Operations	28,000
Net income/(Loss)	$77,000

Working Note

1. Computation of Discontinued operations

Particulars	Amount ($)
Discontinued Operations (Loss before income taxes)	$40,000
Less: Income tax expense	$12,000
Discontinued Operations	$28,000

Preparing a Partial Income Statement

Partial Income Statement
For the Year Ended December 31, 2017
Income from continuing operations before Income Tax	150,000
Income Tax Expense	45,000
Income from Continuing operations	105,000
Discontinued Operations	28,000
Net income/(Loss)	$77,000
Earnings per Share	$7.7

Working Note

1. Calculation of Earnings per share

$\begin{array}{rcl}\mathbf{Earnings}\mathbf{ }\mathbf{per}\mathbf{ }\mathbf{share}& \mathbf{=}& \mathbf{Net}\mathbf{ }\mathbf{Income}\mathbf{÷}\mathbf{Outstanding}\mathbf{ }\mathbf{common}\mathbf{ }\mathbf{stock}\\ & \mathbf{=}& \mathbf{\$}\mathbf{77}\mathbf{,}\mathbf{000}\mathbf{÷}\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{common}\mathbf{ }\mathbf{stock}\\ & \mathbf{=}& \mathbf{\$}\mathbf{7}\mathbf{.}\mathbf{7}\end{array}$