51.Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any one year. The 2010 income statement data for the company is as follows:
Net sales
|
$840,000
|
Less: Cost of goods sold
|
500,000
|
Gross profit
|
$340,000
|
Selling and administrative expenses
|
120,000
|
Net operating income
|
$220,000
|
Gain on sale of securities
|
24,000
|
Interest expense
|
(4,000)
|
Net income from continuing operations before tax
|
$240,000
|
Less: Income tax
|
51,200
|
Net income from continuing operations
|
$188,800
|
Extraordinary gain (net of tax)
|
22,000
|
Net income before change in accounting principle
|
$210,800
|
Income effect due to change in accounting principle
|
52,000
|
Net income
|
$262,800
|
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before change in accounting principle?
a. $55,000
b. $60,000
c. $65,700
d. $42,160
52.Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any one year. The 2010 income statement data for the company is as follows:
Net sales
|
$840,000
|
Less: Cost of goods sold
|
500,000
|
Gross profit
|
$340,000
|
Selling and administrative expenses
|
120,000
|
Net operating income
|
$220,000
|
Gain on sale of securities
|
24,000
|
Interest expense
|
(4,000)
|
Net income from continuing operations before tax
|
$240,000
|
Less: Income tax
|
51,200
|
Net income from continuing operations
|
$188,800
|
Extraordinary gain (net of tax)
|
22,000
|
Net income before change in accounting principle
|
$210,800
|
Income effect due to change in accounting principle
|
52,000
|
Net income
|
$262,800
|
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before extraordinary items and change in accounting principle?
a. $37,760
b. $60,000
c. $65,700
d. $52,700
53.Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any one year. The 2010 income statement data for the company is as follows:
Net sales
|
$840,000
|
Less: Cost of goods sold
|
500,000
|
Gross profit
|
$340,000
|
Selling and administrative expenses
|
120,000
|
Net operating income
|
$220,000
|
Gain on sale of securities
|
24,000
|
Interest expense
|
(4,000)
|
Net income from continuing operations before tax
|
$240,000
|
Less: Income tax
|
51,200
|
Net income from continuing operations
|
$188,800
|
Extraordinary gain (net of tax)
|
22,000
|
Net income before change in accounting principle
|
$210,800
|
Income effect due to change in accounting principle
|
52,000
|
Net income
|
$262,800
|
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of net operating income?
a. $44,000
b. $60,000
c. $47,200
d. $52,700
54.Gleeson Industries consists of four separate divisions: compressed wood products, chemicals, stone products, and plastics. On March 15, 2010, Gleeson sold the chemicals division for $625,000 cash.Financial information related to the chemicals division follows:
Period from 1/1/10 to 3/15/10
|
|
Sales
|
$175,000
|
Operating expenses
|
160,000
|
Net operating income (loss)
|
$15,000
|
|
|
As of 3/15/10
|
|
Assets
|
$1,850,000
|
Liabilities
|
1,400,000
|
The journal entry to record the sale of the chemicals division will include:a. a debit to Loss on Disposal of Business Segment for $175,000.
b. a debit to Assets for $1,850,000.
c. a debit to Extraordinary Gain for $175,000.
d. a credit to Gain on Disposal of Business Segment for $175,000.
55.Gleeson Industries consists of four separate divisions: compressed wood products, chemicals, stone products, and plastics. On March 15, 2010, Gleeson sold the chemicals division for $625,000 cash. Financial information related to the chemicals division follows:
Period from 1/1/10 to 3/15/10
|
|
Sales
|
$175,000
|
Operating expenses
|
160,000
|
Net operating income (loss)
|
$15,000
|
|
|
As of 3/15/10
|
|
Assets
|
$1,850,000
|
Liabilities
|
1,400,000
|
If the income tax rate for the company is 35%, what amount of income tax liability on the disposal of the business segment will be recognized?
a. $218,750
b. $61,250
c. $5,250
d. $157,500
56.The management of Hammer Enterprises shares in a bonus that is determined and paid at the end of each year. The amount of the bonus is based on 12% of net income from continuing operations after tax. The bonus is not used in the calculation of income from continuing operations. During 2010, Hammer was sued and was ordered to pay $480,000 over and above the amount covered by insurance. The loss is tax deductible and the company’s tax rate is 35%. The company was last involved in a lawsuit five years ago. Net income from continuing operations before tax for 2010, excluding the lawsuit loss was $750,000.
What would management’s 2010 bonus be if the lawsuit is considered unusual by not infrequent?
a. $175,500
b. $32,400
c. $21,060
d. $20,160
57.The management of Hammer Enterprises shares in a bonus that is determined and paid at the end of each year. The amount of the bonus is based on 12% of net income from continuing operations. The bonus is not used in the calculation of income from continuing operations. During 2010, Hammer was sued and was ordered to pay $480,000 over and above the amount covered by insurance. The loss is tax deductible and the company’s tax rate is 35%. The company was last involved in a lawsuit five years ago. Net income from continuing operations (before tax for 2010, excluding the lawsuit loss was $750,000.
What would management’s 2010 bonus be if the lawsuit is considered extraordinary?
a. $90,000
b. $57,600
c. $32,400
d. $58,500
58.The following income statement was reported by Snappy Seacraft Company for the year ending December 31, 2010:
Sales
|
$85,000
|
|
Rent revenue
|
23,000
|
|
Interest income
|
7,000
|
|
Total revenues
|
|
$115,000
|
Cost of goods sold
|
$52,000
|
|
Operating expenses
|
24,000
|
|
Interest expense
|
12,000
|
|
Loss on sale of fixed asset
|
6,000
|
|
Total expenses
|
|
94,000
|
Income from continuing operations (before tax)
|
|
$21,000
|
Less: Income tax
|
|
10,000
|
Income from continuing operations
|
|
$11,000
|
Income from disposed segment (net of tax)
|
|
3,000
|
Gain on sale of disposed segment (net of tax)
|
|
2,000
|
Income before extraordinary items
|
|
$16,000
|
Extraordinary loss (net of tax)
|
|
7,000
|
Income before change in accounting principle
|
|
$9,000
|
Income due to change in accounting principle (net of tax)
|
|
6,000
|
Net income
|
|
$15,000
|
Assume Snappy has an average of 15,000 shares of common stock outstanding during 2010. Based on this information, what amount of earnings per share would be reported on the income statement as the disposal of the business segment?
a. $0.33
b. $0.20
c. $1.00
d. $0.73
59.The following income statement was reported by Snappy Seacraft Company for the year ending December 31, 2010:
Sales
|
$85,000
|
|
Rent revenue
|
23,000
|
|
Interest income
|
7,000
|
|
Total revenues
|
|
$115,000
|
Cost of goods sold
|
$52,000
|
|
Operating expenses
|
24,000
|
|
Interest expense
|
12,000
|
|
Loss on sale of fixed asset
|
6,000
|
|
Total expenses
|
|
94,000
|
Income from continuing operations (before tax)
|
|
$21,000
|
Less: Income tax
|
|
10,000
|
Income from continuing operations
|
|
$11,000
|
Income from disposed segment (net of tax)
|
|
3,000
|
Gain on sale of disposed segment (net of tax)
|
|
2,000
|
Income before extraordinary items
|
|
$16,000
|
Extraordinary loss (net of tax)
|
|
7,000
|
Income before change in accounting principle
|
|
$9,000
|
Income due to change in accounting principle (net of tax)
|
|
6,000
|
Net income
|
|
$15,000
|
Assume Snappy has an average of 25,000 shares of common stock outstanding during 2010. Based on this information, what amount of earnings per share would be reported on the income statement as the disposal of the business segment?
a. $0.12
b. $0.20
c. $0.08
d. $0.60