Chapter 4

Ch. 4 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

STARR CO.
Income Statement
For the Year 2010
Revenues

Sales

$540,000

Expenses

Cost of goods sold

$330,000 Wage 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 4-2

BRISKY CORPORATION
Income Statement
For the Year Ended December 31, 2010
Revenues

Net sales

$2,400,000 Interest revenue

31,000 Total revenues

2,431,000

Expenses

Cost of goods sold

$1,450,000 Selling expenses

280,000 Administrative expenses

212,000 Interest expense

45,000 Income tax expense*

133,200 Total expenses

2,120,200

Net income

$ 310,800

Earnings per share**

$4.44

*($2,431,000 – $1,450,000 – $280,000 – $212,000 – $45,000) X 30% = $133,200.

**$310,800 ÷ 70,000 shares.
BRIEF EXERCISE 4-3

BRISKY CORPORATION
Income Statement
For the Year Ended December 31, 2010
Net sales

$2,400,000
Cost of goods sold

1,450,000 Gross profit

950,000
Selling expenses
$280,000

Administrative expenses 212,000 492,000
Income from operations

458,000
Other revenue and gains

Interest revenue
31,000

Other expenses and losses

Interest expense 45,000 14,000
Income before income tax

444,000
Income tax expense

133,200
Net income

$ 310,800

Earnings per share

$4.44*

*$310,800 ÷ 70,000 shares.

BRIEF EXERCISE 4-4

Income from continuing operations

$10,600,000
Discontinued operations

Loss from operation of discontinued restaurant division (net of tax)

$315,000