Wiley Companyâs income statement for Year 2 follows: Sales $2,550 Cost of goods sold 1,300 Gross margin 1,250 Selling andadministrative expenses 300 Income before taxes 950 Income taxes380 Net income $ 570 The companyâs selling and administrativeexpense for Year 2 includes $82 of depreciation expense. Selectedbalance sheet accounts for Wiley at the end of Years 1 and 2 are asfollows: Year 2 Year 1 Current Assets Accounts receivable $190 $255Inventory $156 $196 Prepaid expenses $39 $23 Current LiabilitiesAccounts payable $102 $84 Accrued liabilities $10 $26 Income taxespayable $106 $75 Required: 1. Using the direct method, convert thecompanyâs income statement to a cash basis. (Adjustment amountsthat are to be deducted should be indicated with a minus sign.) 2.Assume that during Year 2 Wiley had a $10,000 gain on sale ofinvestments and a $5,000 loss on the sale of equipment. Would thesetransactions affect the computation in (1) above? Yes, gains andlosses on income statement are considered under direct method. No,gains and losses on income statement are ignored under directmethod. Yes, gains and losses on income statement are ignored underdirect method. No, gains and losses on income statement areconsidered under direct method. eBook & Resources
Wiley Companyâs income statement for Year 2 follows: Sales $2,550 Cost of goods sold 1,300 Gross margin 1,250 Selling andadministrative expenses 300 Income before taxes 950 Income taxes380 Net income $ 570 The companyâs selling and administrativeexpense for Year 2 includes $82 of depreciation expense. Selectedbalance sheet accounts for Wiley at the end of Years 1 and 2 are asfollows: Year 2 Year 1 Current Assets Accounts receivable $190 $255Inventory $156 $196 Prepaid expenses $39 $23 Current LiabilitiesAccounts payable $102 $84 Accrued liabilities $10 $26 Income taxespayable $106 $75 Required: 1. Using the direct method, convert thecompanyâs income statement to a cash basis. (Adjustment amountsthat are to be deducted should be indicated with a minus sign.) 2.Assume that during Year 2 Wiley had a $10,000 gain on sale ofinvestments and a $5,000 loss on the sale of equipment. Would thesetransactions affect the computation in (1) above? Yes, gains andlosses on income statement are considered under direct method. No,gains and losses on income statement are ignored under directmethod. Yes, gains and losses on income statement are ignored underdirect method. No, gains and losses on income statement areconsidered under direct method. eBook & Resources
Related questions
Wiley Companyâs income statement for Year 2 follows:
| Sales | $ | 2,700 |
| Cost of goods sold | 1,500 | |
| Gross margin | 1,200 | |
| Selling and administrative expenses | 500 | |
| Income before taxes | 700 | |
| Income taxes | 280 | |
| Net income | $ | 420 |
The companyâs selling and administrative expense for Year 2 includes $80 of depreciation expense. Selected balance sheet accounts for Wiley at the end of Years 1 and 2 are as follows:
| Year 2 | Year 1 | ||||
| Current Assets | |||||
| Accounts receivable | $ | 190 | $ | 230 | |
| Inventory | $ | 168 | $ | 200 | |
| Prepaid expenses | $ | 36 | $ | 30 | |
| Current Liabilities | |||||
| Accounts payable | $ | 97 | $ | 84 | |
| Accrued liabilities | $ | 8 | $ | 21 | |
| Income taxes payable | $ | 124 | $ | 75 | |
Required:
1. Using the direct method, convert the companyâs income statement to a cash basis.
2. Assume that during Year 2 Wiley had a $11,000 gain on sale of investments and a $6,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?
The following income statement items appeared on the adjustedtrial balance of Schembri Manufacturing Corporation for the yearended December 31, 2016 ($ in 000s): sales revenue, $19,100; costof goods sold, $8,100; selling expenses, $1,490; general andadministrative expenses, $990; interest revenue, $250; interestexpense, $220. Income taxes have not yet been recorded. Thecompanyâs income tax rate is 30% on all items of income or loss.These revenue and expense items appear in the companyâs incomestatement every year. The companyâs controller, however, has askedfor your help in determining the appropriate treatment of thefollowing nonrecurring transactions that also occurred during 2016($ in 000s). All transactions are material in amount. |
| 1. | Investments were sold during the year at a loss of $410.Schembri also had unrealized gains of $510 for the year oninvestments. |
| 2. | One of the companyâs factorieswas closed during the year. Restructuring costs incurred were$2,200. |
| 3. | During the year, Schembri completed the sale of one of itsoperating divisions that qualifies as a component of the entityaccording to GAAP. The division had incurred a loss from operationsof $700 in 2016 prior to the sale, and its assets were sold at again of $1,700. |
| 4. | In 2016, the companyâs accountant discovered that depreciationexpense in 2015 for the office building was understated by$390. |
| 5. | Foreign currency translationlosses for the year totaled $430. |
| Required: | |||
| 1. | Prepare Schembriâs single, continuous multiple-step statement ofcomprehensive income for 2016, including basic earnings per sharedisclosures. One million shares of common stock were outstanding atthe beginning of the year and an additional 800,000 shares wereissued on July 1, 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers in thousands. RoundEPS answers to 2 decimal places.)
| ||
A comparative balance sheet and an income statement for BurgessCompany are given below: |
| Burgess Company Comparative Balance Sheet (dollars in millions) | ||||
| Ending Balance | Beginning Balance | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 49 | $ | 79 |
| Accounts receivable | 645 | 580 | ||
| Inventory | 660 | 615 | ||
| Total currentassets | 1,354 | 1,274 | ||
| Property, plant, andequipment | 1,515 | 1,466 | ||
| Less accumulated depreciation | 765 | 641 | ||
| Net property,plant,and equipment | 750 | 825 | ||
| Totalassets | $ | 2,104 | $ | 2,099 |
| Liabilitiesand Stockholders' Equity | ||||
| Currentliabilities: | ||||
| Accounts payable | $ | 250 | $ | 155 |
| Accrued liabilities | 190 | 165 | ||
| Income taxes payable | 76 | 70 | ||
| Total currentliabilities | 516 | 390 | ||
| Bonds payable | 450 | 620 | ||
| Totalliabilities | 966 | 1,010 | ||
| Stockholders'equity: | ||||
| Common stock | 161 | 161 | ||
| Retained earnings | 977 | 928 | ||
| Total stockholders'equity | 1,138 | 1,089 | ||
| Total liabilitiesand stockholders' equity | $ | 2,104 | $ | 2,099 |
| Burgess Company Income Statement (dollars in millions) | ||
| Sales | $ | 3,600 |
| Cost of goodssold | 2,550 | |
| Gross margin | 1,050 | |
| Selling andadministrative expenses | 875 | |
| Net operatingincome | 175 | |
| Nonoperating items:Gain on sale of equipment | 3 | |
| Income beforetaxes | 178 | |
| Income taxes | 63 | |
| Net income | $ | 115 |
Burgess also provided the following information: |
| 1. | The company sold equipment that had an original cost of $13million and accumulated depreciation of $8 million. The cashproceeds from the sale were $8 million. The gain on the sale was $3million. |
| 2. | The company did not issue anynew bonds during the year. |
| 3. | The company paid a cash dividendduring the year. |
| 4. | The company did not complete anycommon stock transactions during the year. |
| Required: | |
| 1. | Using the indirect method, prepare a statement of cash flows forthe year. (Enter your answers in millions not in dollars .List any deduction in cash and cash outflows as negativeamounts.) |
