EXERCISE 4-7 (30–40 minutes)

(a) WEATHERSPOON SHOE CO.

Income Statement
For the Year Ended December 31, 2010

Net sales............................................................ $980,000

Cost of goods sold............................................ 516,000
Gross profit....................................................... 464,000

Selling expenses............................................... $140,000

Administrative expenses..................................    181,000   321,000
143,000
Other income and expense
Rental 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).......... $.92
EXERCISE 4-7 (Continued)

(b) WEATHERSPOON SHOE CO.

Income Statement
For the Year Ended December 31, 2010

Net sales............................................................. $980,000

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

Administrative expenses...................................   181,000   321,000

143,000
Other income and expense
Rental 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
Earnings per share ($108,400 ÷ 20,000)........... $.92

WEATHERSPOON SHOE CO.

Comprehensive Income Statement
For the Year Ended December 31, 2010
Net income......................................................... $108,400
Other comprehensive income
Unrealized gain on securities, net of tax.....     31,000
Comprehensive income.................................... $139,400
(c) The combined statement has the advantage of not requiring the creation
of a new financial statement. However, burying net income as a subtotal
on the statement is considered a disadvantage.
PROBLEM 5-6

(a) LANSBURY INC.

Statement of Cash Flows
For the Year Ended December 31, 2010

Cash flows from operating activities

Net income............................................................. $32,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation expense ( B Kredit ) + $11,000
Gain on sale of investments (P Kredit ) - (3,400)
Increase in account receivable (PKredit)-
($41,600 – $21,200)....................................... (20,400) (12,800)
Net cash provided by operating activities.......1) 19,200

Cash flows from investing activities

Sale of investments.............................................. 15,000
Purchase of land................................................... (18,000)
Net cash used by investing activities 2) (3,000)

Cash flows from financing activities

Issuance of ordinary shares................................ 20,000
Retirement of notes payable................................ (16,000)
Payment of cash dividends.................................. (8,200)
Net cash used by financing activities 3) (4,200)

Net increase in cash................................................4) 12,000

Cash at beginning of year.......................................5) 20,000
Cash at end of year………………………………….6) $32,000
Noncash investing and financing activities were the purchase of land through issuance of $30,000 of bonds.