Vol. 1, Chapter 6 – The Income Statement
Problem 1: Solution
1.
Gain on sale of range:
Proceeds
$500
Net book value* 300
Gain
$200
*net book value = original cost - accumulated depreciation
NBV = $3,000 - $2,700 = $300
2.
Loss on sale of van:
Proceeds
NBV
Loss
$3,500
5,000
($1,500)
Problem 2: Solution
1.
2.
3.
Range:
NBV
Gain on sale
Cash received
$1,000
500
$1,500
Van:
Accumulated Depr.
Sold for
NBV after 2 years
Gain on sale
$18,000
15,000
12,000
$ 3,000
Computer
DDB Depr. for year 1
NBV after 1 year
Sold for
Loss on sale
$2,000
$1,000
500
$ 500
(2/3)*3000
Problem 3: Solution
1.
2.
3.
4.
5.
6.
Rooms revenue = $600,000 × .680 = $408,000
Total rooms expense = $408,000 × .261 = $106,488
Energy costs = $600,000 × .042 = $25,200
Admin. and general costs = $600,000 × .083 = $49,800
Beverage gross profit = $600,000 × .044 × .785 = $20,274
Total food and beverage expenses =
$600,000 × (.205 + .044) × .557 = $83,216
The Income Statement
1
Problem 4: Solution
1.
Cost of food used
Beginning inventory
Plus: Purchases
Less: Ending inventory
Cost of food used
2.
Cost of food sold
Cost of food used
Less: Employees meals
Less: Transfers to bev. dept.
Cost of food sold
3.
$ 8,000
40,000
(10,000)
$38,000
$38,000
(500)
(300)
$37,200
Cost of beverages sold
Beginning inventory
Plus: Purchases
Less: Ending inventory
Cost of beverages sold
$ 3,000
20,000
(3,500)
$19,500
Problem 5: Solution
1.
Calculation of the cost of food sold
+
=
=
+
=
2.
1.
2.
3.
4.
Inventory, Dec. 1
Purchases
Food available for sale
Inventory, Dec. 31
Cost of food consumed
Employee meals
Promotional meals
Transfers to kitchen
Cost of food sold
Expense
Cost of food sold
Employee meals--general manager
Employee meals--food department
Promotional meals
$12,376
76,840
89,216
15,845
73,371
733
256
46
$72,428
Department
Food Department
Admin. & General
Food Department
Marketing Department
Problem 6: Solution
Hilltop Motel Rooms Schedule
Revenue
Transient rooms revenue
$150,000
Other rooms revenue
2,000
Total
152,000
Allowances
500
Net Revenue
151,500
Expenses
Payroll and related expenses
Salaries and wages
25,000
Payroll taxes
2,000
Employee benefits
5,000
Total Payroll & Related
Other Expenses
Commissions
1,000
Contract services
1,800
Laundry and dry cleaning
4,200
Linen
1,000
Miscellaneous
1,800
Operating supplies
1,500
Uniforms
500
Total Other Expenses
Department Income (Loss)
The Income Statement
3
30,000
11,800
$109,700
Problem 7: Solutions
Burba Inn Rooms Schedule
Revenue:
Transient Rooms Revenue
$750,000
Other
50,000
Total
800,000
Allowances
2,000
Net Revenue
Expenses:
Payroll and Related Expenses
Salaries and Wages
130,000
Payroll Taxes
12,300
Employee Benefits
18,000
Total Payroll and Related
Other Expenses:
Commissions
2,000
Contract Services
3,000
Laundry and Dry Cleaning
6,500
Linen
6,500
Miscellaneous
350
Operating Supplies
4,850
Reservations
12,200
Telecommunications
3,500
Training
550
Uniforms
1,200
Total Other Expenses
Total Expenses
Departmental Income
798,000
160,300
40,650
200,950
$597,050
Problem 8: Solution
1.
Gross profit = net revenue - cost of sales
$561,000 - 54,000 =
$507,000
2. Total fixed charges = rent, property taxes,
insurance, and depreciation
$17,000 + 30,000 =
$47,000
3. Average tax rate = income taxes / income before
income taxes
$21,938/87,750 =
25.00%
4.
Gross operating profit =
$155,750
5. Overhead expenses = undistributed operating
expenses + fixed charges
$140,250 + 47,000 =
$187,250
6. Payroll cost % =
revenue
$224,250/561,000 =
7.
total payroll costs / net
39.97%
Food cost % = food costs / food revenue
$54,000/180,000 =
30.00%
Problem 9: Solution
Income Statement
(operated departments section)
MacKenzie Inn
For the Year of 20X6
Revenues
Cost of
Sales
Rooms
Food
Other
$1,200,000
600,000
68,000
$356,000
-
Total Operated
Dept. Income
$1,868,000
$356,000
The Income Statement
5
Payroll & Rel. Other Direct
Expenses
$240,000
$100,000
216,000
40,000
$456,000
$140,000
Income
$860,000
(12,000)
68,000
$916,000
Problem 10: Solution
The Salazar Sunset Inn
Summary Income Statement
As of December 31, 20X6
Net
Revenues
Operated Departments
Rooms
Food
Beverages
Rental and Other Income
Total Operated Departments
$
998,000
540,000
200,000
15,000
1,753,000
Payroll &
Related
Expenses
Other
Expenses
180,000
60,000
$ 150,000
160,000
40,000
$ 80,000
40,000
15,000
240,000
350,000
135,000
768,000
160,000
85,000
15,000
1,028,000
80,000
80,000
40,000
55,000
60,000
70,000
225,000
120,000
55,000
60,000
70,000
305,000
$ 430,000
$ 360,000
723,000
50,000
673,000
70,000
55,000
548,000
85,000
463,000
115,750
Cost of
Sales
$
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utilities
Total Undistributed Expenses
Gross Operating Profit
Management Fees
Income Before Fixed Charges
Property Taxes and Insurance
Depreciation and Amortization
Net Operating Income
Interest Expense
Income Before Income Taxes
Income Taxes
Net Income
$1,753,000
$ 240,000
Income
(Loss)
$
$
347,250
Problem 11: Solution
Summary Statement of Income
Ramsey's
For the Year Ended December 31, 19X3
Amounts
Revenue
Food
Beverage
Total Revenue
Percentages
$1,200,000
500,000
1,700,000
70.6%
29.4
100.0
453,000
128,000
581,000
26.6
7.5
34.2
Gross Profit
1,119,000
65.8
Operating Expenses
Salaries and Wages
Employee Benefits
Direct Operating Expenses
Music
Marketing
Utility Services
General and Admin. Expenses
Repair and Maintenance
Occupancy Costs
Depreciation
Other Income
Total Operating Expenses
430,000
85,000
100,000
20,000
30,000
35,000
92,000
30,000
152,000
50,000
(20,000)
1,004,000
25.3
5.0
5.9
1.2
1.8
2.1
5.4
1.8
8.9
2.9
(1.2)
59.1
115,000
20,000
6.8
1.2
Net Income before Income Taxes
95,000
5.6
Income Taxes
28,500
1.7
66,500
3.9%
Cost of Sales
Food
Beverage
Total Cost of Sales
Operating Income
Interest
Net Income
The Income Statement
$
7
Problem 12: Solution
Wilson Motel
Summary Income Statement
For the Year Ended December 31, 20X6
Net
Revenues
Operated Departments
Rooms
Food
Rental and Other Income
Total Operated Departments
$380,000
1.) $96,300
180,000 3.) 53,200 2.) 72,500
1,000
$561,000
53,200
168,800
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utilities
Total Undistributed Expenses
Totals
Payroll &
Related
Expenses
Cost of
Sales
4.)
60,000
60,000
$561,000
$53,200
$228,800
Gross Operating Profit
Management Fees
Income before Fixed Charges
Property Taxes and Insurance
Depreciation
Net Operating Income
Interest Expense
Income before Income Taxes
Income Taxes
Net Income
Calculations:
(1) Rooms Dept. Payroll and Related ($80,000×1.2)+$300(food)=$96,300
(2) Food Dept. Payroll and Related
($60,000×1.2)+$500(food)=$72,500
(3) Cost of food sold
B.I., 1/1
2,000
+ Purchases
55,000
–E.I., 12/31
3,000
Cost of Food Used
54,000
–Free food
800
COFS
53,200
(4) Admin and Gen Payroll and related=$50,000×1.2=$60,000
(5) Management fees: $380,000×.03+$122,000×.1=$23,600
(6) Interest Expense: $50,000(.1)(.5)+$40,000(.1)(.5)=$4,500
Other
Expenses
Income
(Loss)
$30,000
20,000
50,000
$253,700
34,300
1,000
289,000
10,000
40,000
30,000
27,000
107,000
70,000
40,000
30,000
27,000
167,000
$157,000
122,000
5.)
6.)
122,000
23,600
98,400
17,000
50,000
31,400
4,500
26,900
6,725
$20,175
Problem 13: Solution
The completed income statement is on the following page. Below
are the calculations used for several of the noted entries on the
income statement.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(i)
500,000 - 3,000 = 497,000
100,000 * .06 * .33 = 2,000
5,000 + 220,000 – 7000 – 3000 = 215,000
350,000 * 1.3 = 455,000
1,899,000(.02) + 469,500(.05) = 61,430
15,000 - 10,000 = 5,000
2,000 - 5,000 = -3,000
154,570 * .25 = 38,642.50
Problem 14: Solution
The completed income statement follows the next page. Below are
the calculations used for several of the noted entries on the
income statement.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
1,210,000 - 10,000 = 1,200,000
7,000 + 200,000 – 5,000 – 4,000 = 198,000
1.3(300,000) + 3,000 = 393,000
1.3(200,000) + 1,000 = 261,000
1.3(1,200,000) = 156,000
.02(1,200,000) + .1(282,000) = 52,200
.5(1,000,000 * .12) = 60,000
8,000 - 10,000 = -2,000
2,000 – (15,000 – 12,000) = -1,000
The Income Statement
9
Problem 13: Solution
JW Motel
Summary Income Statement
For the Year Ended December 31, 20X2
Payroll &
Cost of
Related
Other
Sales
Expenses
Expenses
Net
Revenues
Operated Departments
Rooms
Food
Rental and Other Income
Total Operated Departments
(a)
(b)
$1,400,000
497,000
2,000
$1,899,000
(d)
(c.)
$215,000
$455,000
260,000
$50,000
40,000
215,000
715,000
90,000
$895,000
(18,000)
2,000
879,000
130,000
130,000
40,000
110,000
60,000
70,000
280,000
170,000
110,000
60,000
70,000
410,000
$845,000
$370,000
469,000
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operations and Maintenance
Utilities
Total Undistributed Expenses
Totals
Gross Operating Profit
Management Fees
Income before Fixed Charges
Property Taxes and Insurance
Depreciation
Net Operating Income
Interest Expense
Income before Gain or Loss on Sale of Property
Gain on Sale of Stock
Loss on Sale of Van
Income before Income Taxes
Income Taxes (25%)
Net Income
$1,899,000
Income
(Loss)
$215,000
(e)
(f)
(g)
(h)
469,000
61,430
407,570
100,000
80,000
227,570
75,000
152,570
5,000
(3,000)
154,570
38,642.50
$115,927.50
Problem 14: Solution
Milford Motel
Summary Income Statement
For the Year Ended December 31, 20X2
Payroll and
Other
Cost of Sales
Related Exp.
Expenses
Net Revenue
Operated Departments
Rooms
Food
Total Operated Departments
(a)
$ 1,200,000
450,000
1,650,000
(b)
198,000
198,000
Undistributed Operating Expenses
Admin and general
Sales and Marketing
Property operations and maintenance
Utilities
Total Undistributed Operating Exp.
$
(e)
$ 1,650,000
Totals
Gross Operating Profit
Management Fees
Income before fixed charges
Rent, property tax and insurance
Depreciation
Net Operating Income
Interest Expense
Income before gain (loss) on sale of assets
Loss on sale of stock
Loss on sale of computer
Income before Income Taxes
Income Taxes 30%
$198,000
393,000
261,000
654,000
156,000
$
$
50,000
40,000
90,000
$
156,000
216,000
80,000
60,000
70,000
426,000
810,000
$ 360,000
282,000
282,000
52,200
229,800
120,000
80,000
29,800
60,000
-30,200
-2,000
-1,000
-33,200
-9,960
(g)
(h)
(i)
$
11
757,000
-49,000
708,000
60,000
80,000
60,000
70,000
270,000
(f)
Net Income
The Income Statement
(c)
(d)
Income
(Loss)
(23,240)
Problem 15: Solution
Part 1
Tim's Tasty Tidbits
Common-Size Income Statements
For the months of August and September, 19X1
Percentages
August
September
August
September
$80,000
$82,000
100.00%
100.00%
Cost of Food Sales
24,000
25,000
30.00
30.49
Labor
Laundry
China, Glass, Silver
Other
Total Expenses
25,500
4,000
1,000
16,000
70,500
28,800
4,200
1,100
15,500
74,600
31.88
5.00
1.25
20.00
88.13
35.12
5.12
1.34
18.90
90.98
7,400
11.88%
9.03%
Food Sales
Net Income
$
9,500
$
Part 2
Average Sales Per Customer:
August
September
$5.7143
$5.4667
Average Cost of Sales Per Customer:
September
August
$1.7143
$1.6667
Gross Profit Per Customer:
August
September
$4.00
$3.80
The analysis above shows that the gross profit per customer has
decreased from $4.00 to $3.80. Overall profits have decreased by
$2,100 when 1,000 additional customers were serviced in September
over August.
Problem 16: Solution
20X1
Pat's Place
Comparative Income Statement
For the Years of 20X1 and 20X2
Difference
20X2
$
%
Rooms
Revenue
Expenses
Department Income
$976,000
250,000
726,000
$1,041,000
264,000
777,000
$65,000
14,000
51,000
6.66%
5.60%
7.02%
Food
Revenue
Expenses
Department Income
604,000
476,000
128,000
626,000
507,000
119,000
22,000
31,000
(9,000)
3.64%
6.51%
-7.03%
Telephone
Revenue
Expenses
Department Income
50,000
68,000
(18,000)
52,000
68,000
(16,000)
2,000
0
2,000
4.00%
0.00%
11.11%
Total Operated Department Income
836,000
880,000
44,000
5.26%
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operations and Maintenance
Utilities
Total Undistributed Operating Expenses
195,000
65,000
69,000
101,000
430,000
206,000
68,000
68,000
102,000
444,000
11,000
3,000
(1,000)
1,000
14,000
5.64%
4.62%
-1.45%
0.99%
3.26%
Gross Operating Profit
Rent
Depreciation and Amortization
Net Operating Income
Interest Expense
Income before Income Taxes
Income Taxes
406,000
200,000
116,000
90,000
55,000
35,000
7,000
436,000
201,000
116,000
119,000
52,000
67,000
17,000
30,000
1,000
0
29,000
(3,000)
32,000
10,000
7.39%
0.50%
0.00%
32.22%
-5.45%
91.43%
142.86%
Net Income
$28,000
$50,000
$22,000
78.57%
The Income Statement
13
Problem 17: Solution
Black Beach Motel
Summary Income Statement
For the Year Ended December 31, 20X1
Net
Revenues
Operated Departments
Rooms
Food
Telecommunications
Rental and Other Income
Total Operated Departments
$600,000
300,000
16,000
6,000
$922,000
Cost of
Sales
$922,000
Other
Expenses
Income
(Loss)
76,100
10,000
$125,600
101,000
6,250
$40,000
30,000
3,000
86,100
232,850
73,000
$434,400
92,900
(3,250)
6,000
530,050
50,300
25,000
75,300
20,000
8,000
40,000
27,000
95,000
70,300
33,000
40,000
27,000
170,300
$308,150
$168,000
359,750
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utilities
Total Undistributed Expenses
Totals
Payroll &
Related
Expenses
$86,100
Gross Operating Profit
Management Fees
Income before Fixed Charges
Rent, Property Taxes and Insurance
Depreciation
Net Operating Income
Interest Expense
Income before Income Taxes
Income Taxes
359,750
74,880
284,870
37,000
60,000
187,870
50,000
137,870
41,361
Net Income
$96,509
Problem 18: Solution
Bush Beach Motel
Summary Income Statement
For the Year Ended December 31, 20X1
Net
Revenues
Operated Departments
Rooms
Food
Rental and Other Income
Total Operated Departments
$549,000
250,000
1,800
$800,800
Cost of
Sales
$800,800
Income
(Loss)
$108,000
72,000
$30,000
20,000
65,200
180,000
50,000
$411,000
92,800
1,800
505,600
72,000
72,000
15,000
33,470
40,000
27,000
115,470
87,000
33,470
40,000
27,000
187,470
$252,000
$165,470
318,130
$65,200
318,130
30,068
288,062
33,000
45,000
210,062
1,000
211,062
63,318.60
Gross Operating Profit
Management Fees
Income before Fixed Charges
Property Taxes and Insurance
Depreciation and Amortization
Income before Gain on Sale of Property
Gain on Sale of Property
Income before Income Taxes
Income Taxes
$147,743.40
Net Income
The Income Statement
Other
Expenses
65,200
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utilities
Total Undistributed Expenses
Totals
Payroll &
Related
Expenses
15
Problem 19: Solution
Wilkin Inn
Comparative Income Statement
For the Years of 20X1 and 20X2
Total Revenues
Rooms-Revenues
Payroll & Related Expenses
Other Expenses
Department Income
Food-Revenues
Cost of Sales
Payroll & Related Expenses
Other Expenses
Department Income
Telephone-Revenues
Cost of Sales
Payroll & Related Expenses
Other Expenses
Department Income
Total Operated Department Income
Undistributed Operating Expenses:
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
Gross Operating Profit
Management Fees
Income before Fixed Charges
Rent, Property Taxes and Insurance
Depreciation
Net Operating Income
Interest Expense
Income before Income Taxes
Income Taxes
Net Income
Difference
$
$200,000
20X1
$1,000,000
20X2
$1,200,000
$600,000
90,000
50,000
460,000
350,000
115,000
75,000
35,000
125,000
50,000
40,000
14,286
7,000
(11,286)
573,714
$750,000
100,000
55,000
595,000
390,000
130,000
82,500
38,500
139,000
60,000
44,800
16,286
8,000
(9,086)
724,914
$150,000
10,000
5,000
135,000
40,000
15,000
7,500
3,500
14,000
10,000
4,800
2,000
1,000
2,200
151,200
25.0
11.1
10.0
29.3
11.4
13.0
10.0
10.0
11.2
20.0
12.0
14.0
14.3
19.5
26.4
100,000
55,000
45,000
50,000
250,000
323,714
27,000
296,714
100,000
25,000
171,714
60,000
111,714
60,000
$51,714
111,000
60,000
55,000
56,000
282,000
442,914
30,000
412,914
106,000
30,000
276,914
80,000
196,914
66,000
$130,914
11,000
5,000
10,000
6,000
32,000
119,200
3,000
116,200
6,000
5,000
105,200
20,000
85,200
6,000
$79,200
11.0
9.1
22.2
12.0
12.8
36.8
11.1
39.2
6.0
20.0
61.3
33.3
76.3
10.0
153.1
%
20.0
Problem 20: Solution
Part 1
Rooms Operating Schedule
Net Room Revenue
Expenses
Salaries & Wages
Employee Benefits
Total Payroll and Related Exp.
$1,560,000
209,000
51,000
260,000
Other Expenses
Commission
Contract Cleaning
Laundry
Linen
Miscellaneous
Reservation
Total Other Expenses
8,600
23,500
5,800
24,800
130,000
13,500
206,200
Total Expenses
466,200
Departmental Income
$1,093,800
Part 2
Cost of Goods Sold
Beginning Inventory
Add: Purchases
Less: Ending Inventory
Cost of Food Consumed
Less: Employee Meals
Cost of Food Sold
The Income Statement
$ 38,900
328,400
(53,000)
314,300
(12,300)
$ 302,000
17
Problem 20: Solution (continued)
Part 3
Harby Hotel
Summary Income Statement
For the year ended December 31, 19X2
Operated Departments
Rooms
Food
Telephone
Rental and Other Income
Total
Operated
Departments
Net
Revenues
Cost of
Sales
Payroll &
Related
Expenses
Other
Expenses
Income
(Loss)
$1,560,000
858,000
62,400
119,600
302,000
46,800
9,360
$260,000
93,600
15,600
20,800
$206,200
93,600
6,240
9,360
$1,093,800
368,800
(6,240)
80,080
$2,600,000
$358,160
$390,000
$315,400
$1,536,440
337,334
111,800
112,200
159,500
720,834
337,334
111,800
112,200
159,500
720,834
$1,036,234
815,606
Undistributed Operating Expenses
Administrative and General
Sales and Marketing
Property Operation and Maintenance
Utilities
Total Undistributed Expenses
Totals
$2,600,000
Gross Operating Profit
Rent,
Property
Taxes
and
Insurance
Depreciation
and
Amortization
Net Operating Income
Interest Expense
Income before Gain on Sale of Property
Gain on Sale of Equipment
Income before Income Taxes
Income Taxes
$358,160
$390,000
815,606
228,800
91,000
495,806
98,800
397,006
3,000
400,006
160,002
$240,004
Net Income
The Income Statement
19