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Chapter 4: Q4-2IFRS (page 198)

Discuss the appropriate treatment in the income statement for the following items:

(a) Loss on discontinued operations.

(b) Non-controlling interest allocation.

Short Answer

Expert verified
  1. The loss on discontinued operations is deducted from the income from continuing operations.
  2. Non-controlling interest allocation is represented separately in the income statement.

Step by step solution

01

Definition of Income Statement

An income statement is a tabular presentation of the business entities鈥� expenses and revenues data that facilitates the management to compute the net income or net loss earned or incurred during one accounting period.

02

Treatment of loss on discontinued operations

The loss on discontinued operations is deducted from the income from continuing operations in an income statement. Also, the same deduction should benet of tax, or the company should subtract the applicable taxes from such losses to obtain accurate net income.

03

Treatment of non-controlling interest allocation

Non 鈥揷ontrolling interest allocation represents the ownership position of the shareholders who own less than 50% of shares outstanding and do not allow to participate in the decision-making process.

The non-controlling interest is reported separately in the income statement asa profit鈥檚 share that belongs to the minority shareholders.

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Most popular questions from this chapter

Roxanne Carter Corporation reported the following for 2017: net sales \(1,200,000, cost of goods sold \)750,000, selling and administrative expenses \(320,000, and an unrealized holding gain on available-for-sale securities \)18,000.

Instructions

Prepare a statement of comprehensive income, using (a) the one statement format and (b) the two statement format. (Ignore income taxes and earnings per share.)

Presented below is information related to Viel Company at December 31, 2017, the end of its first year of operations.

Sales revenue \(310,000

Cost of goods sold \)140,000

Selling and administrative expenses \(50,000

Gain on sale of plant assets \)30,000

Unrealized gain on available-for-sale investments \(10,000

Interest expense \)6,000

Loss on discontinued operations \(12,000

Dividends declared and paid \)5,000

Instructions

Compute the following: (a) income from operations, (b) net income, (c) comprehensive income, and (d) retained earnings balance at December 31, 2017. (Ignore income tax effects.)

Perlman Land Development, Inc. purchased land for \(70,000 and spent \)30,000 developing it. It then sold the land for \(160,000. Sheehan Manufacturing purchased land for a future plant site for \)100,000. Due to a change in plans, Sheehan later sold the land for \(160,000. Should these two companies report the land sales, both at gains of \)60,000, in a similar manner?

Presented below are certain account balances of Paczki Products Co.

Rent revenue \(6,500 Sales discounts \)7,800

Interest expense \(12,700 Selling expenses \)99,400

Beginning retained earnings \(114,400 Sales revenue \)390,000

Ending retained earnings \(125,000Income tax expense \)31,000

Dividend revenue \(71,000Cost of goods sold \)184,000

Sales returns and allowances \(12,400Administrative expenses \)82,500

Allocation to non controlling interest $17,000

Instructions

From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.

Maher Inc. reported income from continuing operations before taxes during 2017 of \(790,000. Additional transactions occurring in 2017 but not considered in the \)790,000 are as follows.

  1. The corporation experienced an uninsured flood loss in the amount of \(90,000 during the year.
  2. 2. At the beginning of 2015, the corporation purchased a machine for \)54,000 (salvage value of \(9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base.
  3. Sale of securities held as a part of its portfolio resulted in a loss of \)57,000 (pretax).
  4. When its president died, the corporation realized \(150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of \)46,000 (the gain is nontaxable).
  5. The corporation disposed of its recreational division at a loss of \(115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.
  6. The corporation decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2015 income by \)60,000 and decrease 2016 income by $20,000 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%.

Instructions

Prepare an income statement for the year 2017 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)
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