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PROBLEM 4-3

MAHER INC.
Income Statement (Partial)
For the Year Ended December 31, 2017
Income
from
continuing
operations
before income tax........................................................
$748,500(a)
Income tax............................................................
193,350(b)
Income from continuing operations.............................
555,150
Discontinued operations
Loss from disposal of recreational
division.............................................................
$115,000
Less: Applicable income tax reduction............ 34,50 (1)
(80,500
0
)
Net income......................................................................
$474,650
(1) $115,000 30%
Per share of common stock:
Income from continuing operations
($555,150 120,000)
Discontinued operations, net of tax...................
Net income ($474,650 120,000)........................

$4.63*
(0.67)*
$3.96

*Rounded
(a)

Computation of income from cont. operations before taxes:


As previously stated................................................
Loss on sale of securities.......................................
Gain on proceeds of life insurance
policy ($150,000 $46,000).................................
Flood Loss
Error in computation of depreciation
As computed ($54,000 6)..........................................
$9,000
Corrected ($54,000 $9,000) 6.................................
(7,500)
As restated....................................................................

$790,000
57,000
104,000
90,000
1,500
$748,500

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

22-1

PROBLEM 4-3 (Continued)


(b)

Computation of income tax:


Income from continuing operations before taxes..........
Nontaxable income (gain on life insurance)...................
Taxable income..................................................................
Tax rate...............................................................................
Income tax..........................................................................

$748,500
(104,000)
644,500
X
.30
$193,350

Note: No adjustment is needed for the inventory method change, since the
new method is reported in 2017 income. The cumulative effect on prior
years of retroactive application of the new inventory method will be
recorded in retained earnings.
LO: 3, 4, Bloom: AP, Difficulty: Moderate, Time: 30-40, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: None

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Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

PROBLEM 4-6

(a)

ACADIAN CORP.
Retained Earnings Statement
For the Year Ended December 31, 2017
Retained earnings, January 1, as reported........................................
$257,600
Correction of error from prior period (net of tax)..............................
25,400
Adjustment for change in accounting principle
(net of tax)..........................................................................................
(23,200)
Retained earnings, January 1, as adjusted........................................
259,800
Add: Net income.................................................................................
52,300*
Less: Cash dividends declared..........................................................
32,000
Retained earnings, December 31........................................................
$280,100
*$52,300 = ($84,500 + $41,200 + $21,600 $35,000 $60,000)

(b)

1. Gain on sale of investmentsbody of income statement. This gain


should not be shown net of tax on the income statement.
2. Refund on litigation with governmentbody of income statement,
possibly unusual item. This refund should not be shown net of tax
on the income statement.
3. Loss on discontinued operationsbody of the income statement,
following the caption, Income from continuing operations.
4. Write-off of goodwillbody of income statement, possibly unusual item. The write-off should not be shown net of tax on the
income statement.

LO: 4, 5, 6, Bloom: AP, Difficulty: Moderate, Time: 25-35, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Measurement, Reporting,
AICPA PC: Communication

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

22-3

PROBLEM 4-7
WADE CORP.
Income Statement (Partial)
For the Year Ended December 31, 2017
Income from continuing operations
before income tax.....................................
$1,200,000*
Income tax...........................................
456,000**
Income from continuing operations..........
744,000
Discontinued operations
Loss
from
operations
of
discontinued subsidiary................. $ 90,000
Less: Applicable income tax
reduction ($90,000 .38).... 34,200 $ 55,800
Loss from disposal of subsidiary........ 100,000
Less: Applicable income tax
reduction ($100,000 .38).. 38,000
62,000
(117,800)
Net income...................................................
$ 626,200
Per share of common stock:
Income from continuing operations
($744,000 150,000).........................................................
Discontinued operations, net of tax...................................
Net income ($626,200 150,000).........................................
*Computation of income from continuing operations
before income tax:
As previously stated
Loss on sale of equipment [$40,000 ($80,000 $30,000)]
Restated

$4.96
(0.79)
$4.17

$1,210,000
(10,000)
$1,200,000

**Computation of income tax:


$1,200,000 X .38 = $456,000
Note: The gain on condemnation is appropriately included in income from
continuing operations (and is taxed at 38%). The error related to the
intangible asset was correctly charged to retained earnings.
LO: 3, 4, 5, Bloom: AP, Difficulty: Moderate, Time: 25-35, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: None

22-4

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

EXERCISE 22-2
(a) Inventory......................................................................
Retained Earnings..............................................

14,000*
14,000

*($19,000 + $23,000 + $25,000) ($15,000 + $18,000 + $20,000)


(b) Net Income (FIFO)

2015
2016
2017

$19,000
23,000
25,000

(c) Inventory.....................................................................
Retained Earnings..............................................

24,000*
24,000

*($19,000 + $23,000 + $25,000) ($12,000 + $14,000 + $17,000)


LO: 1, Bloom: AP, Difficulty: Moderate, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

EXERCISE 22-6
(a) The net income to be reported in 2018, using the retrospective approach,
would be computed as follows:
Income before income tax
$900,000
Income tax (40% X $900,000)
360,000
Net income
$540,000
(b) Construction in Process........................................
Deferred Tax Liability (40% X $290,000).......
Retained Earnings..........................................

290,000
116,000
174,000*

*($290,000 X 60% = $174,000)


LO: 1, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

22-5

EXERCISE 22-8
(a) Depreciation to date on equipment
Sum-of-the-years-digits depreciation
2015 (5/15 X $510,000*)
2016 (4/15 X $510,000)
2017 (3/15 X $510,000)

$170,000
136,000
102,000
$408,000

*$25,000 $15,000
Cost of equipment
Less: Depreciation to date
Book value (December 31, 2017)

$525,000
408,000
$117,000

Book value Salvage value = Depreciable cost


$117,000 $15,000 = $102,000
Depreciation for 2018: $102,000/2 = $51,000
Depreciation Expense.............................................
Accumulated DepreciationEquipment.......

51,000
51,000

(b) Depreciation to date on building


$693,000/30 years = $23,100 per year
$23,100 X 3 = $69,300 depreciation to date
Cost of building
Less: Depreciation to date
Book value (December 31, 2017)

$693,000
69,300
$623,700

Depreciation for 2018: $623,700/(40 3) = $16,857


Depreciation Expense.............................................
Accumulated DepreciationBuildings..........

16,857
16,857

LO: N/A, Bloom: AP, Difficulty: Complex, Time: 30-35, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

22-6

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

EXERCISE 22-11
December 31, 2018
Retained Earnings ($550,000 X 9/55).............................
Accumulated DepreciationEquipment...............
(To correct for the omission of depreciation
expense in 2016)
Cost of Machine
Less: Depreciation prior to 2018
2015 ($550,000 X 10/55)
2016 ($550,000 X 9/55)
2017 ($550,000 X 8/55)
Book Value at January 1, 2018

90,000
90,000

$550,000
$100,000
90,000
80,000

270,000
$280,000

Depreciation for 2018: $280,000 7 = $40,000


Depreciation Expense.....................................................
Accumulated DepreciationEquipment...............
(To record depreciation expense for 2018)

40,000
40,000

LO: 2, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

22-7

EXERCISE 22-21
Item
(1)
(2)
(3)
(4)
(5)

2017
OverUnderstatement statement

No
Effect
X

2018
OverUnderstatement statement
X
X

No
Effect
X

X
X

LO: 3, 4, Bloom: AP, Difficulty: Complex, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

22-8

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

PROBLEM 22-2
(a) 1.

Cost of equipment............................................................
Less: Salvage value.........................................................
Depreciable cost..............................................................
Depreciation to 2017
2014 ($80,000/10)..........................
2015 ($80,000/10)..........................
2016 ($80,000/10)..........................
Depreciation in 2017
Cost of equipment.......................
Less: Depreciation to 2017........
Book value (January 1, 2017)......
Less: Salvage value....................
Depreciable cost..........................

$85,000
5,000
$80,000

$ 8,000
8,000
8,000
$24,000
$85,000
24,000
61,000
3,000
$58,000

Depreciation in 2017
$58,000/4 = $14,500
Depreciation Expense.............................................
Accumulated DepreciationEquipment........
2.

14,500
14,500

Cost of Building.................................... $300,000


Less: Depreciation to 2017
2015............................................
60,000
2016............................................
48,000
Book value (January 1, 2017)... $192,000
Less: Salvage value.................
30,000
Depreciable cost........................ $162,000
Depreciation in 2017
($162,000/8) = $20,250
Depreciation Expense.............................................
Accumulated DepreciationBuildings.........

20,250

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

20,250

22-9

PROBLEM 22-2 (Continued)


3.

Depreciation Expense ($120,000 $16,000) 8...... 13,000


Accumulated DepreciationMachinery..........
Accumulated DepreciationMachinery..................
Retained Earnings.............................................

13,000

3,000
3,000

Depreciation recorded in 2015:


($120,000 8) X

= $7,500

Depreciation that should be recorded in 2015:


([$120,000 $16,000] 8) X

= $6,500

Depreciation recorded in 2016:


($120,000 8) = $15,000
Depreciation that should be recorded in 2016:
($120,000 $16,000) 8 = $13,000
Depreciation Depreciation that
taken
should be taken Differences

(b)

2015

$ 7,500

$ 6,500

$1,000

2016

15,000

13,000

2,000

$22,500

$19,500

$3,000

HOLTZMAN COMPANY
Comparative Income Statements
For the Years 2017 and 2016
2017
Income before depreciation expense.................... $300,000
Depreciation expense*............................................
47,750
Net income............................................................... $252,250
*Depreciation Expense

2016
$310,000
69,000
$241,000

2014

Equipment......................................................... $ 14,500
Buildings...........................................................
20,250
Machinery..........................................................
13,000
$ 47,750

2013
$

8,000
48,000
13,000
$ 69,000

LO: 1, Bloom: AP, Difficulty: Moderate, Time: 30-35, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

22-10

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

PROBLEM 22-3
(a) 1.
Bad debt expense for 2015 should not have been reduced by
$10,000. A change in the experience rate is considered a change in
estimate, which should be handled prospectively.
2.

A change from LIFO to FIFO is considered a change in accounting


principle, which must be handled retrospectively.

3.

(a) The inventory error in 2017 is a prior period adjustment and


the 2017 and 2018 financial statements should be restated.
(b) The lawsuit settlement is correctly treated.

(b)

BOTTICELLI INC.
Comparative Income Statements
For the Years 2015 through 2018

Net income (see below)


Adjustments

2015
$145,000

2016
$165,000

2015

2016

Net income (unadjusted) $140,000


1. Bad debt expense
adjustment
(10,000)
2. Inventory adjustment
(FIFO)
15,000
3. Inventory
overstatement
Net income (adjusted)
$145,000

$160,000

5,000
$165,000

2017
2018
$201,000 $274,000
2017

2018

$205,000 $276,000

10,000

(16,000)

(14,000)
14,000
$201,000 $274,000

LO: 1, 2, 3, Bloom: AP, Difficulty: Complex, Time: 30-40, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC:
Communication

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

22-11

PROBLEM 22-7

(1)
Depreciation Expense.....................................................
Accumulated DepreciationEquipment...............

3,200

(2)
Cost of Goods Sold.........................................................
Retained Earnings...................................................

19,000

(3)
Cash.................................................................................
Accounts Receivable..............................................

5,600

(4)
Accumulated DepreciationEquipment.......................
Equipment................................................................
Gain on Disposal of Plant Assets..........................
(5)
Lawsuit Loss....................................................................
Lawsuit Liability.......................................................
(6)
Unrealized Holding Gain or LossIncome
($84,000 $82,000).......................................................
Fair Value Adjustment (Trading).............................
(7)
Salaries and Wages Payable ($16,000 $12,200).........
Salaries and Wages Expense.................................
(8)
Depreciation Expense ($40,000 8)..............................
Equipment........................................................................
Maintenance and Repairs Expense........................
Accumulated DepreciationEquipment...............

22-12

3,200

19,000

5,600
25,000
21,300
3,700
125,000
125,000

2,000
2,000
3,800
3,800
5,000
40,000
40,000
5,000

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

PROBLEM 22-7 (Continued)


(9)
Insurance Expense ($12,000 3)........................................
Prepaid Insurance................................................................
Retained Earnings........................................................

4,000
8,000

(10)
Amortization Expense ($50,000 10).................................
Retained Earnings...............................................................
Trademarks...................................................................

5,000
5,000

12,000

10,000

LO: 3, 4, Bloom: AP, Difficulty: Moderate, Time: 25-30, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

Copyright 2016 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

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