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ACC421 WEEK 3 E4-6 E4-16 E18-4 E18-5

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E4-6 (Multiple-step and Single-step) The accountant of Whitney Houston 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, 2007.
Rental revenue $ 29,000
Interest on notes payable 18,000
Market appreciation on land above cost 31,000
Wages and salaries—sales 114,800
Materials and supplies—sales 17,600
Income tax 37,400
Wages and salaries—administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the yea

E4-16 (Various Reporting Formats) The following information was taken from the records of Roland
Carlson Inc. for the year 2007. Income tax applicable to income from continuing operations $187,000;
income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary
gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on
available-for-sale securities $15,000.
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.

E18-4 (Recognition of Profit on Long-Term Contracts) During 2007 Pierson Company started a construction
job with a contract price of $1,500,000. The job was completed in 2009. The following information
is available.
2007 2008 2009
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,000 –0–
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-ofcompletion
method is used.
(b) Prepare all necessary journal entries for 2008.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract
method is used.

E18-5 (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing
the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract

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