Learning Materials
Features
Discover
Chapter 4: 28Q (page 180)
When does tax allocation within a period become necessary? How should this allocation be handled?
Tax allocation within a period is helpful to provide the accurate results of specific transactions showing a net of all effects.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
What effect does intraperiod tax allocation have on reported net income?
The following financial statement was prepared by employees of Walters Corporation.
WALTERS CORPORATION
INCOME STATEMENT
THE YEAR ENDED DECEMBER 31, 2017
Revenues
Gross sales, including sales taxes \(1,044,300
Less: Returns, allowances, and cash discounts 56,200
Net sales 988,100
Dividends, interest, and purchase discounts 30,250
Recoveries of accounts written off in prior years 13,850
Total revenues 1,032,200
Costs and expenses
Cost of goods sold, including sales taxes 465,900
Salaries and related payroll expenses 60,500
Rent 19,100
Delivery expense and freight in 3,400
Bad debt expense 27,800
Total costs and expenses 576,700
Income before other items 455,500
Other items
Loss on discontinued styles (Note 1) 71,500
Loss on sale of marketable securities (Note 2) 39,050
Loss on sale of warehouse (Note 3) 86,350
Total other items 196,900
Net income \)258,600
Net income per share of common stock \(2.30
Note 1: New styles and rapidly changing consumer preferences resulted in a \)71,500 loss on the disposal of discontinued styles and related accessories.
Note 2: The Corporation sold an investment in marketable securities at a loss of \(39,050. The corporation normally sells securities of this nature.
Note 3: The Corporation sold one of its warehouses at an \)86,350 loss.
Instructions
Identify and discuss the weaknesses in classification and disclosure in the single-step income statement above. You should explain why these treatments are weaknesses and what the proper presentation of the items would be in accordance with GAAP.
Portman Corporation has retained earnings of \(675,000 at January 1, 2017. Net income during 2017 was \)1,400,000, and cash dividends declared and paid during 2017 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2017.
Question: Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2017.
(000 omitted)
Net sales revenue \(640,000
Costs and expenses
Cost of goods sold \)500,000
Selling, general, and administrative expenses 66,000
Other, net 17,000
583,000
Income before income tax 57,000
Income tax 19,400
Net income 37,600
Retained earnings at beginning of period, as previously reported 141,000
Adjustment required for correction of error (7,000)
Retained earnings at beginning of period, as restated 134,000
Dividends on common stock (12,200)
Retained earnings at end of period \(159,400
Additional facts are as follows.
1. 鈥淪elling, general, and administrative expenses鈥� for 2017 included a charge of \)8,500,000 that was usual but infrequently occurring.
2. 鈥淥ther, net鈥� for 2017 included a loss on sale of equipment of $6,000,000.
3. 鈥淎djustment required for correction of an error鈥� was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made).
4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements.
Instructions
Determine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)
Question: O鈥橫alley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2017. The accountant for O鈥橫alley Corporation provides you with the following income statement which O鈥橫alley plans to submit to the bank.
O鈥橫ALLEY CORPORATION
INCOME STATEMENT
Sales revenue \(850,000
Dividends 32,300
Gain on recovery of insurance proceeds from
earthquake loss 38,500
920,800
Less:
Selling expenses \)101,100
Cost of goods sold 510,000
Advertising expense 13,700
Loss on obsolescence of inventories 34,000
Loss on discontinued operations 48,600
Administrative expense 73,400 780,800
Income before income tax 140,000
Income tax 56,000
Net income $84,000
Instructions
Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine