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1M4-1ThefollowinginformationisavailableforCookeCompanyforthecurrentyear:Netsales$1,800,000Freight-in45,000Purchasesdiscounts25,000Endinginventory120,000Thegrossmarginis40%ofnetsales.Whatisthecostofgoodsavailableforsale?a.$840,000b.$960,000c.$1,200,000d.$I,220,000[Answer:c]M4-2Atransactionthatismaterialinamount,unusualinnature,andinfrequentinoccurrenceispresentedintheincomestatementseparatelyasacomponentofincomea.Netofapplicableincometaxesb.Asapriorperiodadjustmentc.Fromcontinuingoperationsd.Fromdiscontinuedoperations[Answer:a]M4-3EffectiveJanuary1,2004,YoungerCompanyadoptedtheaccountingprincipleofexpensingasincurredadvertisingandpromotioncosts.Previously,advertisingandpromotioncostsapplicabletofutureperiodswererecordedinprepaidexpenses.Youngercanjustifythechange,whichwasmadeforbothfinancialstatementandincometaxreportingpurposes.Younger'sprepaidadvertisingandpromotioncoststotaled$500,000atDecember31,2003.Assumethattheincometaxrateis30%for2003and2004.Theadjustmentfortheeffectofthischangeinaccountingprincipleshouldresultinanetchargeagainstincomeinthe2004incomestatementofa.$0b.$150,0002c.$350,000d.$500,000[Answer:c]M4-4Acompanychangesfromthedouble-declining-balancemethodofdepreciationforpreviouslyrecordedassetstothestraight-linemethod.Thecumulativeeffectofthechangeontheamountofretainedearningsatthebeginningoftheperiodinwhichthechangeismadeisreportedseparatelyasa(n)a.Extraordinaryitemb.Componentofincomeafterextraordinaryitemsc.Componentofincomefromcontinuingoperationsd.Priorperiodadjustment[Answer:b]M4-5PaloCorporationincurredthefollowinglosses,netofapplicableincometaxes,fortheyearendedDecember31,2004:LossondisposalofacomponentofPalo'sbusiness$400,000Lossontranslationofforeigncurrencyduetodevaluation500,000HowmuchshouldPaloreportasextraordinarylossesonits2004incomestatement?a.$0b.$400,000c.$500,000d.$900,000[Answer:a]M4-6Whichofthefollowingisexpensedundertheprincipleofsystematicandrationalallocation?a.Salespeople'smonthlysalariesb.Insurancepremiumsc.Transportationtocustomers3d.Electricitytolightofficebuilding[Answer:b]M4-7ThefollowinginformationisavailableforWagnerCorporationforthecurrentyear:Sales$500,000Beginninginventory180,000Endinginventory95,000Freight-out45,000Purchases215,000Howmuchisthecostofgoodssold?a.$200,000b.$300,000c.$345,000d.$440,000[Answer:b]M4-8DobbinCorporation,amanufacturerofhouse-holdpaints,ispreparingannualfinancialstatementsatDecember31,2004.Becauseofarecentlyprovenhealthhazardinoneofitspaints,thegovernmenthasclearlyindicateditsintentionofhavingDobbinrecallallcamofthispaintsoldinthelastsixmonths.ThemanagementofDobbinestimatesthatthisrecallwouldcost$1,000,000.Whataccountingrecognition,ifany,shouldbeaccordedthissituation?a.Norecognitionb.Footnotedisclosurec.Operatingexpenseof$1,000,000d.Extraordinarylossof$1,000,000[Answer:c]M4-9Alossfromthesaleofacomponentofabusinessenterpriseisreported4separatelyasacomponentofincomea.Aftercumulativeeffectofaccountingchangesandbeforeextraordinaryitemsb.Beforecumulativeeffectofaccountingchangesandafterextraordinaryitemsc.Afterextraordinaryitemsandcumulativeeffectofaccountingchangesd.Beforeextraordinaryitemsandcumulativeeffectofaccountingchanges[Answer:d]M4-10Inastatementofcashflows,receiptsfromsalesofproperty,plant,andequipmentgenerallyareclassifiedasa.Investingactivitiesb.Sellingactivitiesc.Operatingactivitiesd.Financingactivities[Answer:a]E4-1SimpleincomeStatementThefollowingareselectedaccountbalancesoftheAlbertsonCompanyasofDecember31,2004:Purchases(net)$63,000Merchandiseinventory,January1,200420,000Gainonsaleofequipment5,000Sales(net)$100,000Operatingexpenses22,000Extraordinaryloss(pretax)8,000ThemerchandiseinventoryonDecember31,2004is$31,000.Tenthousandsharesofcommonstockhavebeenoutstandingtheentireyear.RequiredAssuminga30%incometaxrateonallitemsofincome,preparea2004incomestatementforAlbenstonCompanyusing(1)amultiple-stepformat,and(2)asingle-stepformat.E4-151.ALBERTSONCOMPANYIncomeStatementForYearEndedDecember31,2004Sales(net)$100,000CostofgoodssoldInventory,1/1/2004$20,000Add:Purchases(net)63,000Costofgoodsavailableforsale$83,000Less:Inventory,12/31/2004(31,000)Costofgoodssold(52,000)Grossprofit$48,000Operatingexpenses(22,000)Operatingincome$26,000OtheritemsGainonsaleofequipment5,000Incomebeforeincometaxandextraordinaryitems$31,000Incometaxexpense(9,300)Incomebeforeextraordinaryitems$21,700Extraordinaryloss(netof$2,400incometaxcredit)(5,600)NetIncome$16,100EarningsperCommonShareComponentsofIncome(10,000commonshares)Incomebeforeextraordinaryitems$2.17Extraordinaryloss(0.56)Netincome$1.612.ALBERTSONCOMPANYIncomeStatementForYearEndedDecember31,2004RevenuesSales(net)$100,000Gainonsaleofequipment5,000Totalrevenues$105,000ExpensesCostofgoodssold(Schedule1)$52,000Operatingexpenses22,000Incometaxexpense9,300Totalexpenses(83,300)Incomebeforeextraordinaryitems$21,700Extraordinaryloss(netof$2,400incometaxcredit)(5,600)NetIncome$16,1006EarningsperCommonShareComponentsofIncome(10,000commonshares)Incomebeforeextraordinaryitems$2.17Extraordinaryloss(0.56)Netincome$1