1. Arnold Co. purchases $1,200 of inventory on account on December 28 and sells the entire inventory to customers in January. Arnold pays its A/P off on February 1. If Arnold uses accrual accounting, what amount of expense will it report in December’s income statement?

2. For #3, if Arnold uses cash accounting, what amount of expense will it report in January’s income statement?

3. Arnold Co. has the following: earnings before income taxes ($200K), discontinued items (loss of $300K, pre-tax), tax rate (30%). What is Arnold’s income from continuing operations?

4. For #5, what is Arnold’s net income?

5. For #5, what is Arnold’s EPS for discontinued operations, assuming that Arnold has 100K shares of common stock outstanding and declared $50K of common dividends?

6. For #5, assuming Arnold’s earnings before income taxes was actually a loss (i.e., negative $200K), what would be Arnold’s income from continuing operations?

7. For #7 (ignore the information in #8), what is Arnold’s EPS for discontinued operations, assuming that the company declared $50K of preferred dividends?

8. When Arnold declares dividends, which account is credited in that journal entry?

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Answers 1 Under accrual accounting revenue should match with corresponding expense hence revenue wil... View the full answer