Income Statement Problems With Answers

Income Statement Problems with model answer:
Problem 1
The following balances were taken from the books of Parnevik Corp. on December 31,
2015.
Assume the total effective tax rate on all items is 34%.
Instructions
Prepare an income statement; 100,000 ordinary shares were outstanding during the year.
PARNEVIK CORP.
Income Statement
For the Year Ended December 31, 2015
Revenue
Sales revenue ................................................................... €1,280,000
Less: Sales returns and allowances ............................. €150,000
Sales discounts ................................................... 45,000 195,000
Net sales revenue ............................................................. 1,085,000
Cost of goods sold ........................................................... 621,000
Gross profit ............................................................................. 464,000
Selling expenses .......................................................... 194,000

Admin. and general expenses..................................... 97,000 291,000
Other Income and Expense
Loss from impairment of plant assets ............................(120,000)
Interest revenue ............................................................... 86,000 (34,000)
Income from operations .......................................................... 139,000
Interest expense............................................................... 60,000
Income before income tax ....................................................... 79,000
Income tax (€79,000 X .34) .............................................. 26,860
Net income ................................................................................ € 52,140
Earnings per share (€52,140 ÷ 100,000) ................................... €0.5214*

Problem 2
The accountant of Weatherspoon Shoe Co. has compiled the following information from
the company's records as a basis for an income statement for the year ended December
31, 2015.
There were 20,000 ordinary shares outstanding during the year.
Instructions
1. Prepare a comprehensive income statement using the combined statement

approach.
WEATHERSPOON SHOE CO.
Statement of Comprehensive Income
For the Year Ended December 31, 2015
Net sales ........................................................... £980,000

Cost of goods sold .......................................... 516,000
Gross profit ...................................................... 464,000
Selling expenses.............................................. £140,000

Administrative expenses ................................. 181,000 321,000
Other income and expense
Rent revenue ................................................ 29,000
Loss on sale of plant assets ....................... (15,000) 14,000
Income from operations .................................. 157,000
Interest expense .............................................. 18,000
Income before income tax ............................... 139,000
Income tax ........................................................ 30,600
Net income ....................................................... 108,400
Other Comprehensive income
Unrealized gain on securities, net of tax .... 31,000
Comprehensive income .................................. £139,400
Earnings per share (£108,400 ÷ 20,000) ......... £5.42
Problem 3
Presented below are selected ledger accounts of McGraw Corporation as of December

31, 2015.
Instructions
1. (a) Compute net income for 2015.

2. (b) Prepare a partial income statement beginning with income before income tax,
and including appropriate earnings per share information. Assume 20,000
ordinary shares were outstanding during 2015.
(a) Net sales ....................................................................... € 540,000
Less: Cost of goods sold............................................ (260,000)
Administrative expenses .................................. (100,000)
Selling expenses ............................................... (80,000)
Discontinued operations-loss .......................... (40,000)
60,000
Income tax (€60,000 X .30) ................................ 18,000
Net income .................................................................... € 42,000
(b) Income before income tax ........................................... €100,000*

Income tax (€100,000 X .30) ......................................... 30,000
Income from continuing operations............................ 70,000
Discontinued operations, less applicable
income tax of €12,000 ............................................... (28,000)
Net income .................................................................... € 42,000
*€60,000 + €40,000
Earnings per share:

Income from continuing operations
(€70,000 ÷ 20,000) ................................................... € 3.50
Loss on discontinued operations, net of tax .......... (1.40)
Net income (€42,000 ÷ 20,000) .................................. € 2.10

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Income Statement Problems with model answer:

Assume the total effective tax rate on all items is 34%.

Selling expenses .......................................................... 194,000

Earnings per share (€52,140 ÷ 100,000) ................................... €0.5214*

There were 20,000 ordinary shares outstanding during the year.

1. Prepare a comprehensive income statement using the combined statement

Net sales ........................................................... £980,000

Selling expenses.............................................. £140,000

Presented below are selected ledger accounts of McGraw Corporation as of December

1. (a) Compute net income for 2015.

(b) Income before income tax ........................................... €100,000*

Earnings per share:

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