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Chapter 4: Question 16Q (page 180)

Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.

(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of \(425,000 would have been charged.

(b) In 2017, a flood destroyed a warehouse that had a book value of \)1,600,000. Floods are rare in this locality.

(c) In 2017, the company wrote off $1,000,000 of inventory that was considered obsolete.

(d) In 2014, a supply warehouse with an expected useful life of 7 years was erroneously expensed.

(e) Boleyn, Inc. changed from weighted-average to FIFO inventory pricing.

Short Answer

Expert verified

The recording of the financial items should be done according to the rules of accounting. For instance, the purchase of an asset should be reported in the balance sheet and cash flow statement.

Step by step solution

01

Meaning of Financial Transactions

Financial transaction refers to the monetary data associated with a business鈥檚 activities. Financial transactions are recorded in the books of accounts and summarized annually to draft financial statements.

02

Reporting of various financial items

Serial No.

Treatment

Explanation

(a)

Balance sheet as a decrease in equipment鈥檚 book value.

The remaining value of the equipment should be depreciated according to the life of an asset.

(b)

Income statement as an extraordinary loss.

As theloss is nonrecurring, hence should be reported as an extraordinary loss.

(c)

Income statement as an unusual expense.

Written off expenses areconsidered unusual; therefore should be reported as an unusual expense in the income statement.

(d)

The opening balance of retained earnings as adjustment.

The error committed by the management should be corrected by restating the retained earnings.

(e)

The beginning balance of retained earnings as adjustment.

The impact of changing method should be adjusted with the opening balance of the retained earnings accordingly.

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Most popular questions from this chapter

Brisky Corporation had net sales of \(2,400,000 and interest revenue of \)31,000 during 2017. Expenses for 2017 were cost of goods sold \(1,450,000, administrative expenses \)212,000, selling expenses \(280,000, and interest expense \)45,000. Brisky鈥檚 tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.

IFRS4-1 Explain the difference between the 鈥渘ature-of-expense鈥� and 鈥渇unction-of-expense鈥� classifications.

Indicate the section of a multiple-step income statement in which each of the following is shown.

(a) Loss on inventory write-down.

(b) Loss from strike.

(c) Bad debt expense.

(d) Loss on disposal of a discontinued operation.

(e) Gain on sale of machinery.

(f) Interest revenue.

(g) Depreciation expense.

(h) Material write-offs of notes receivable.

The financial statements of P&G are presented in Appendix B. The company鈥檚 complete annual report, including the notes to the financial statements, is available online.

Instructions

Refer to P&G鈥檚 financial statements and the accompanying notes to answer the following questions.

(a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information.

(b) What are P&G鈥檚 primary revenue sources?

(c) Compute P&G鈥檚 gross profit for each of the years 2012鈥�2014. Explain why gross profit decreased in 2014.

(d) Why does P&G make a distinction between operating and nonoperating revenue?

(e) What financial ratios did P&G choose to report in its 鈥淔inancial Summary鈥� section covering the years 2009鈥�2014?

Which of the following is not reported in an income statement under IFRS?

(a) Discontinued operations.

(b) Extraordinary items.

(c) Cost of goods sold.

(d) Income tax.
See all solutions

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