# Week2.assignment

## Week2.assignment

﻿Week 2
Homework Solutions

EXERCISE 4-4 (20–25 minutes)

LEROI JONES INC.
Income Statement
For Year Ended December 31, 2014
Revenues

Net sales (\$1,250,000(b) – \$17,000)

\$1,233,000
Expenses

Cost of goods sold
500,000

Selling expenses
400,000(c)

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 4-4 (Continued)

Determination of amounts

=
20% of cost of good sold

=
20% of \$500,000

=
\$100,000

(b) Gross sales X 8%
=

=
\$100,000 ÷ 8%

=
\$1,250,000

(c) Selling expenses
=

(operating expenses consist of selling

selling expenses are 4/5 of operating

expenses, selling expenses are 4

=
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 part of expenses, and not as a separate item. In this case, total expenses are \$1,083,900.

EXERCISE 4-12 (20–25 minutes)

(a) EDDIE ZAMBRANO CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2014
Balance, January 1, as reported

\$225,000*
Correction for depreciation error (net of \$10,000 tax)

(15,000)
Cumulative decrease in income from change in
inventory methods (net of \$14,000 tax)

(21,000)

189,000

144,000**

333,000
Less: Dividends declared

100,000
Balance, December 31

\$233,000

*(\$40,000 + \$125,000 + \$160,000) – (\$50,000 + \$50,000)
**[\$240,000 – (40% X \$240,000)]

(b) Total retained earnings would still be reported as \$233,000. A...