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Chapter 4: Question 37Q (page 180)

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

Short Answer

Expert verified

Disclosure of a disposed component is based upon its nature, i.e., continued or discontinued.

Step by step solution

01

Meaning of Income Statement

An income statement is a report drafted annually by the business entities to ascertain their profit or losses from the operational and non-operational functions. An income statement contains the description of revenues and expenses.

02

Disclosure of disposal of a business component

If a business concern disposes of its component, then the outcome must be disclosed in the income statement. Disposal may result in either gain or loss.

If such a component belongs to business operations, the outcome can be reported in the continuing operation section.

In comparison, if a component belongs to non-operating operations, then the company should report the gain or loss as an extraordinary item separately in the discontinued operations section.

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Most popular questions from this chapter

Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.

Increase Increase

(Decrease) (Decrease)

Cash \(79,000 Accounts Payable

Accounts Receivable (net) \)45,000 Bonds Payable \(82,000

Inventory \)127,000 Common Stock \(125,000

Investments (47,000) Paid-In Capital in Excess of Par \)13,000

Instructions

Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.

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.

What is the basis for distinguishing between operating and non-operating items?

Question: What are the two ways that other comprehensive income may be displayed (reported)?

A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue on future upgrades to its products. Some contend that Apple鈥檚 quality of earnings is low. What does the term 鈥渜uality of earnings鈥� mean?
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