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Chapter 4: Question 31Q (page 180)

Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. These two closings do not represent a major shift in strategy for the company. Would these closings be reported in a separate section entitled 鈥淒iscontinued operations after income from continuing operations鈥�? Discuss.

Short Answer

Expert verified

Yes, the company must report the outcomes of closing other operations in the income statement.

Step by step solution

01

Meaning of Multi-Step Income Statement

A multi-step income statement reports transactions by bifurcating the business operations into two parts. It includes continued and discontinued operations. The loss and gain associated with the discontinued section are reported separately in the income statement.

02

Reporting of closing business operations

The company should disclose the gain earned or loss incurred from the disposal of its other functions.

Also, such gains or losses should be disclosed in the discontinued operations section of the income statement after reporting the necessary information of continuing operations.

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Most popular questions from this chapter

(Multiple-Step Statement, Retained Earnings Statement) The following information is related to Dickinson Company for 2017.

Retained earnings balance, January 1, 2017 \(980,000

Sales revenue 25,000,000

Cost of goods sold 16,000,000

Interest revenue 70,000

Selling and administrative expenses 4,700,000

Write-off of goodwill 820,000

Income taxes for 2017 1,244,000

Gain on the sale of investments 110,000

Loss due to flood damage 390,000

Loss on the disposition of the wholesale division (net of tax) 440,000

Loss on operations of the wholesale division (net of tax) 90,000XXX

Dividends declared on common stock \)250,000

Dividends declared on preferred stock 80,000

Dickinson Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2017, there were 500,000 shares of common stock outstanding all year.

Instructions

Prepare a multiple-step income statement and a retained earnings statement.

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.)

Bobek Inc. has recently reported steadily increasing income. The company reported income of \(20,000 in 2014, \)25,000 in 2015, and \(30,000 in 2016. A number of market analysts have recommended that investors buy the stock because they expect the steady growth in income to continue. Bobek is approaching the end of its fiscal year in 2017, and it again appears to be a good year. However, it has not yet recorded warranty expense.

Based on prior experience, this year鈥檚 warranty expense should be around \)5,000, but some managers have approached the controller to suggest a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is \(43,000. Specifically, by recording a \)7,000 warranty accrual this year, Bobek could report an increase in income for this year and still be in a position to cover its warranty costs in future years.

Instructions

(a) What is earnings management?

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?

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.)

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