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Chapter 4: Question 17Q (page 180)

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.

Short Answer

Expert verified

The various items in the income statement are shown on the basis of their association with the operational and non-operational activities and are bifurcated accordingly.

Step by step solution

01

Meaning of Multi-Step Income Statement

As the name suggests, the multi-step income statement contains different sections. It categorizes revenues and associated expenses in operating and non-operating units for a better understanding.

02

Reporting of various items of the multi-step income statement

Serial No.

Section

Explanation

(a)

Extraordinary section

Loss on inventory write-down is non-recurring; hence should be shown as an extraordinary loss.

(b)

Extraordinary section

A strike is a non-operational activity; hence respective loss should be reported under the extraordinary section.

(c)

Operation section

Bad debts are part of operating activities; hence related expenses should be reported as operating expenses.

(d)

Discontinued operations section

Loss belongs to discontinued operations should be shown separately in the discontinued operation section.

(e)

Extraordinary section

Gain on sale of an assetis non-operating activity; hence the same should be reported as an extraordinary gain.

(f)

Operating section

Interest revenues are part of business operations; therefore should be reported in the operating section.

(g)

Operating section

Depreciation belongs to business operations; hence should be reported as an operating expense.

(h)

Operating section

Writing off materials linked with notes receivable are associated with business operations; hence should be reported under the operating section.

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Most popular questions from this chapter

How should the disposal of a component of a business be disclosed in the income statement?

The following are selected ledger accounts of Spock Corporation on December 31, 2017.

Cash \( 185,000 Salaries and wages expense (sales) \)284,000

Inventory 535,000 Salaries and wages expense (office) 346,000

Sales revenue 4,275,000 Purchase returns 15,000

Unearned sales revenue 117,000 Sales returns and allowances 79,000

Purchases 2,786,000 Freight-in 72,000

Sales discounts 34,000 Accounts receivable 142,500

Purchase discounts 27,000 Sales commissions 83,000

Selling expenses 69,000 Telephone and Internet expense (sales) 17,000

Accounting and legal services 33,000 Utilities expense (office) 32,000

Insurance expense (office) 24,000 Miscellaneous office expenses 8,000

Advertising expense 54,000 Rent revenue 240,000

Delivery expense 93,000 Casualty loss (before tax) 70,000

Depreciation expense (office equipment) 48,000 Depreciation expense (sales equipment) 36,000

Common stock (\(10 par) 900,000 Interest expense 176,000

Spock鈥檚 effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is \)686,000.

Instructions

Prepare a condensed 2017 income statement for Spock Corporation.

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?

Generally accepted accounting principles usually require the use of accrual accounting to 鈥渇airly present鈥� income. If the cash receipts and disbursements method of accounting will 鈥渃learly reflect鈥� taxable income, why does this method not usually also 鈥渇airly present鈥� income?

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.)
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