Ex.

4-96 Calculation of net income from the change in shareholders' equity

Presented below is selected information pertaining to Pullman Enterprises Ltd. for last year:
Assets, January 1...................................................................................... $240,000
Assets, December 31................................................................................ 320,000
Liabilities, January 1................................................................................ 120,000
Common shares, December 31................................................................. 60,000
Retained earnings, December 31.............................................................. 20,000
Common shares issued during the year.................................................... 2,000
Dividends declared during the year.......................................................... 32,000

Instructions
Calculate the net income for last year.

Solution 4-96
January 1 December 31
Assets....................................................................................................... $240,000 $320,000
Liabilities................................................................................................. 120,000 240,000
Shareholders' equity................................................................................. $ 120,000 $80,000 *

Calculation of net income:

Shareholders' equity, Dec 31............................................................. $ 80,000
Less shareholders' equity, Jan 1........................................................ (120,000)
Decrease........................................................................................... (40,000)
Add back dividend declared.............................................................. 32,000
Less common shares issued.............................................................. (2,000)
Net income (loss)...................................................................... $ (10,000)

*$60,000 + $20,000

Ex. 4-98 Comprehensive income

Tarzana Corporation completed its first year of operations on December 31, 2020. Results and other
information for the year included the following:
Sales......................................................................................................... $810,000
Cost of goods sold.................................................................................... 320,000
Operating expenses................................................................................... 94,000
Unrealized holding gain from investments (accounted for
under the fair value through comprehensive income model).................... 31,000

Instructions
Based on the information provided, prepare a combined statement of income and comprehensive income.
Ignore income taxes and EPS.

Solution 4-98
TARZANA CORPORATION
Statement of Income and Comprehensive Income
For the Year Ended December 31, 2020

Sales.................................................................................................. $810,000
Cost of goods sold.................................................................................... 320,000
 Gross profit............................................................................................... 490,000
Operating expenses................................................................................... 94,000
Net income............................................................................................... 396,000
Other comprehensive income
Unrealized holding gain – OCI......................................................... 31,000
Comprehensive income............................................................................ $427,000

104 Discontinued operations

Hibou Ltd., a private company based in Vancouver, decided to sell its Industrial Design Division. After
two years of losses and heavy competition, a plan to dispose of the division was put in place. At the end
of 2020, the plan was finalized and approved by the board of directors. The sale is anticipated to be
completed by June 30, 2021.

Other information:
1. Hibou's 2020 after-tax net income (excluding the results from the Industrial Design Division) was
$450,000.
2. During the year, the division reported an after-tax loss of $120,000 (revenues: $30,000, expenses:
$150,000).
3. Management estimates that after-tax legal and audit fees of $32,000 as well as severance payments of
$66,000 will be required to finalize the disposal plan. A portion of these costs is expected to be offset by
the after-tax proceeds of $61,000 from the sale of the division's assets.

Instructions
Assuming the Industrial Design Division qualifies for treatment as a discontinued operation, prepare a
partial income statement for Hibou for 2020. The statement should begin with income from continuing
operations and include an appropriate footnote pertaining to the disposal of the Industrial Design
Division.

Solution 4-104
Partial income statement:
HIBOU LTD.
Partial Income Statement
For the Year Ended December 31, 2020

Net income from continuing operations........................................................... $450,000

Discontinued operations*
Loss from operation of discontinued
Industrial Design Division (net of tax)..................................................... $120,000
Loss from disposal of
Industrial Design Division (net of tax)..................................................... 37,000 157,000
Net income....................................................................................................... $293,000

* Footnote:
On December 31, due to continued losses, the board of directors unanimously approved management's
plan to dispose of the Industrial Design Division. The sale is anticipated to be completed by June 30,
2021.

The after-tax operating results for the current year are as follows:

Revenues.................................................................................................. $ 30,000
 Expenses................................................................................................... 150,000
Net loss..................................................................................................... $(120,000)

The estimated after-tax loss relating to the disposal of the division is comprised of the following items:
Proceeds from sale of assets..................................................................... $61,000
Less legal and audit fees........................................................................... 32,000
Less severance payments to staff.............................................................. 66,000
$37,000
Comprehensive income
Sunshine Corporation had the following balances at December 31, 2020 (in thousands): preferred shares
$3,012; common shares $4,718; contributed surplus $1,750; retained earnings $16,791; and accumulated
other comprehensive income $514.

During the year ended December 31, 2020, the company earned net income of $3,613,000, sold common
shares of $30,000, and paid out dividends of $14,000 and $5,000 to preferred and common shareholders,
respectively.

Prepare a statement of changes in equity for the year ended December 31, 2020, as well as the
shareholders’ equity section of the Sunshine Corporation balance sheet as at December 31, 2020.

Solution 4-114
SUNSHINE CORPORATION
Statement of Changes in Equity
For the Year Ended December 31, 2020 (all amounts in thousands)

Comp. Preferred Common Contr. Retained Acc. Other

Total Income Shares Shares Surplus Earnings Comp. Inc.

Beginning Balance $26,785 $3,012 $4,718 $1,750 $16,791 $514

Comprehensive Income:
Net income 3,613 $3,613 3,613

Dividends to shareholders:
Preferred (14) (14)
Common (5) (5)
Issue of common shares 30 ______ 30 ______ _______ ____
Ending Balance $30,409 $3,012 $4,748 $1,750 $20,385 $514

SUNSHINE CORPORATION
Balance Sheet (Partial)
December 31, 2020 (all amounts in thousands)

Share capital:
Preferred shares........................................................................................ $ 3,012
Common shares........................................................................................ 4,748
Total share capital.................................................................................... 7,760
Contributed surplus.......................................................................................... 1,750
Total paid-in capital......................................................................................... 9,510
Retained earnings............................................................................................. 20,385
Accumulated other comprehensive income...................................................... 514
 Total shareholders’ equity........................................................................ $30,409

Cash basis
Argent Inc. reported the following information for their 2020 fiscal year:
Revenue on the income statement............................................................ $114,000
Accounts receivable, Jan 1....................................................................... 3,200
Accounts receivable, Dec 31.................................................................... 6,120
Unearned revenue, Jan 1........................................................................... 1,200
Unearned revenue, Dec 31........................................................................ 1,840

Instructions
Calculate the revenue for the year on a cash basis.

Solution 4-118
$114,000 + $3,200 – $6,120 – $1,200 + $1,840 = $111,720.

Ex. 4-119 Accrual basis

Discover Inc. reported the following information for their 2020 fiscal year:
Cash receipts from sales........................................................................... $114,000
Accounts receivable, Jan 1....................................................................... 4,500
Accounts receivable, Dec 31.................................................................... 7,400
Unearned revenue, Jan 1........................................................................... 1,500
Unearned revenue, Dec 31........................................................................ 1,200

Instructions
Calculate the revenue for the year on an accrual basis.

Solution 4-119
$114,000 – $4,500 + $7,400 + $1,500 – $1,200 = $117,200