EXERCISE 4-3

(a)
2014:
Loss Jan. 1 to Sept. 30 (net of tax)
Loss Sept. 30 to Dec. 31 (net of tax)
Estimated impairment loss on net assets (net of
tax)
Total loss from discontinued operations

$1,900,000
700,000
150,000
$2,750,000

(b)
Discontinued operations (2014):
Loss from operation of discontinued
subsidiary, net of tax
Loss on impairment of net assets, net of tax
Loss from discontinued operations

$2,600,000
150,000
$2,750,000

(c) The correction of the gain or loss from disposal of the subsidiary
reported in 2014 should be reported in 2015 in the discontinued
operations section of the income statement, net of tax and with
separate EPS disclosure, supported by an explanation in a note
to the financial statements. The correction would receive the
same treatment as a change in estimate.
(d) Under IFRS, all assets and liabilities related to the
discontinued subsidiary should be presented as held for
sale, and classified as current assets and current liabilities,
respectively.

EXERCISE 4-3 (Continued)

(e)

Under ASPE, the solution to parts (a) through (c) would

remain the same, except that earnings per share
calculations are not required under ASPE. On the balance
sheet, the assets and liabilities relating to the discontinued
subsidiary should be segregated according to their nature
(e.g. current assets related to the discontinued subsidiary
should be presented as current assets held for sale/related
to discontinued operations, and noncurrent assets related to
the discontinued subsidiary should be presented as
noncurrent assets held for sale/related to discontinued
operations).

EXERCISE 4-8
(a)

Multiple-Step Form
Flett Tire Repair Corporation
Income Statement
For the Year Ended December 31, 2014

Sales Revenue
Sales revenue
Less: Sales returns and allowances
Net sales revenue

$930,000
15,000
915,000

Cost of Goods Sold

Merchandise inventory, January 1, 2014
Purchases
$600,000
Less purchase discounts
10,000
Net purchases
590,000
Add freight-in
14,000
Total merchandise available for sale
Less merchandise inventory,
December 31, 2014
Cost of goods sold
Gross profit
Operating Expenses
Selling expenses
Sales salaries and wages
Depreciation expensestore
equipment
Store supplies expense
Administrative expenses
Administrative salaries and
wages
Depreciation expensebuilding
Office supplies expense
Income from operations
Other Revenues and Gains
Dividend revenue
Gain on sale of equipment

$120,000

604,000
724,000
137,000
587,000
328,000

71,000
18,000
9,000

98,000

39,000
28,500
9,500

77,000

175,000
153,000

20,000
5,500
178,500

EXERCISE 4-8 (Continued)

Other Expenses and Losses
Interest expense
Loss from flood damage

9,000
50,000

59,000

Income before income tax

Income tax

119,500
29,875

Net Income

$89,625

(b)

Single-Step Form
Flett Tire Repair Corporation
Income Statement
For the Year Ended December 31, 2014

Revenues
Net sales revenue
Dividend revenue
Gain on sale of equipment
Total revenues

$915,000
20,000
5,500
940,500

Expenses
Merchandise inventory consumed*
Salaries and wages
Depreciation expense
Supplies expense
Loss from flood damage
Interest expense
Total expenses

587,000
110,000
46,500
18,500
50,000
9,000
821,000

Income before income tax

Income tax
Net income

119,500
29,875
$ 89,625

* This is the same as cost of goods sold.

EXERCISE 4-8 (Continued)

(c)

1.
2.
3.
4.
5.

Single-step:
1.
Simplicity and conciseness.
2.
Probably better understood by user.
3.
Emphasis on total costs and expenses and net
income.
4.
Does not imply priority of one expense over another.
Multiple-step:
Provides more information through segregation of
operating and non-operating items.
Expenses are matched with related revenue.
Highlights components of income used for ratio analysis
(e.g., Cost of Goods Sold)
Showing expenses by function requires allocation of costs
between functions. More judgement is required.
Showing expenses by nature does not require allocation
between functions.

EXERCISE 4-9
(a)

Presley Inc.
Income Statement
for the Year Ended December 31, 2014

Revenues
Sales revenue
Rent revenue
Gain from expropriation
Total revenues
Expenses
Cost of goods sold
Selling expenses
Administrative expenses
Loss from flood damage
Total expenses
Income from continuing operations before income tax
Income tax
Income from continuing operations

$1,900,000
40,000
95,000
2,035,000

850,000
300,000
240,000
60,000
1,450,000
585,000
187,000
398,000

EXERCISE 4-9 (Continued)

Discontinued operations:
Loss from operation of discontinued Ace Division
(net of $25,000 income tax recovery)
Net income
(b)

50,000
$348,000

Presley Inc.
Combined Income Statement and Statement of Retained Earnings
For the Year Ended December 31, 2014

Revenues
Sales revenue
Rent revenue
Gain from expropriation
Total revenues
Expenses
Cost of goods sold
Selling expenses
Administrative expenses
Loss from flood damage
Total expenses
Income from continuing operations before income tax
Income tax
Income from continuing operations

$1,900,000
40,000
95,000
2,035,000

850,000
300,000
240,000
60,000
1,450,000
585,000
187,000
398,000

Discontinued operations:
Loss from operation of discontinued Ace Division
(net of $25,000 income tax recovery)
Net income
Retained earnings, January 1
Less: Cash dividends
Retained earnings, December 31

50,000
$348,000
600,000
948,000
70,0000
$878,000

EXERCISE 4-11
Geneva Inc.
Income Statement
For Year Ended December 31, 2014
Sales revenue
Less sales discounts
Net sales revenue
Expenses
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense
Total expenses
Income before income tax
Income tax
Net income
Earnings per share

$2,100,000
15,000
2,085,000
420,000
336,000
84,000
20,000
860,000
1,225,000
306,250
$ 918,750
$61.25

Determination of amounts:
Administrative
expenses
$84,000

= 20% of cost of good sold

= 20% of $420,000

Gross sales X 4%
Gross sales

= administrative expenses
= ($84,000 / 4%) = $2,100,000

Selling expenses

= 4/5 of cost of goods sold

= 4/5 X $420,000
= $336,000

Per share $61.25 ($918,750 15,000)

EXERCISE 4-14
Holland Rose Corporation
Income Statement
For the Year Ended December 31, 2014
Net sales revenue
Cost of goods sold
Gross profit
Selling expense
Administrative expense
Income from operations
Other revenue
Other expense
Income before income tax
Income tax*
Net income

$4,162,000
2,665,000
1,497,000
$636,000
491,000
240,000
246,000

1,127,000
370,000
6,000
364,000
91,000
$ 273,000

Earnings per share**:

$3.03
Supporting calculations:
* Income tax ($364,000 x 25%) = $91,000
** $273,000 divided by 90,000 common shares.

Sales Revenue
Sales revenue
Less: Sales discounts
Sales returns and allowances
Net sales revenue

$4,275,000
$34,000
79,000

113,000
$4,162,000

EXERCISE 4-14 (Continued)

Cost of Goods Sold:
Inventory, Jan. 1, 2014
Purchases
Less purchase returns and
allowances
Less purchase discounts
Net purchases
Add freight-in
Total goods available for sale
Less inventory, Dec. 31, 2014
Cost of Goods Sold

$535,000
$2,786,000
(15,000)
(27,000)
2,744,000
72,000

2,816,000
3,351,000
686,000
$2,665,000

Selling expenses:
Salaries and wages
Sales commission expense
Entertainment expense
Advertising expense
Freight-out
Depreciation of sales equipment
Telephone and internet expense

$284,000
83,000
69,000
54,000
93,000
36,000
17,000

$636,000

Administrative Expenses:
Salaries and wages
Office expense
Insurance expense
Depreciation of office equipment
Utilities expenses
Miscellaneous expense

$346,000
33,000
24,000
48,000
32,000
8,000

$491,000

Other Expenses:
Interest expense
Loss on disposal of equipment

$176,000
70,000

$246,000

EXERCISE 4-16
Rainy Day Umbrella Corporation
Statement of Changes in Equity
For the Year Ended December 31, 2014 (all amounts in thousands)

Total
Beginning Balance
Comprehensive Income:
Net income
Other comprehensive
income

Comp. Preferred Common Contr. Retained

Income Shares
Shares Surplus Earnings

$24,740

$2,006 $5,291

4,352 $4,352

348

$13,692

$1,526

4,352

Unrealized holding gain*

Comprehensive Income
Dividends to shareholders:
Preferred
Common

(23)
(7)

Issue of Common shares

170

170

$29,580

$2,006 $5,461

Ending Balance

$2,225

Acc.
Other
Comp.
Inc.

348
$4,700

348

(23)
(7)

*May be reclassified subsequently to net income or loss.

$2,225

$18,014

$1,874

EXERCISE 4-16 (Continued)

Rainy Day Umbrella Corporation
Balance Sheet (Partial)
December 31, 2014 (all amounts in thousands)
Share capital:
Preferred shares
Common shares
Total share capital
Contributed surplus
Total paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders equity

$ 2,006
5,461
7,467
2,225
9,692
18,014
1,874
$29,580