Chapter 4: 14 (page 180)
How should correction of errors be reported in the financial statements?
In the financial statements, error correction is reported by adjusting to the beginning balance of retained earnings.
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Bradshaw Company experienced a loss that was deemed to be both unusual in nature and infrequent in occurrence. How should Bradshaw report this item in accordance with IFRS?
During 2017, Liselotte Company reported income of \(1,500,000 before income taxes and realized a gain of \)450,000 on the disposal of assets related to a discontinued operation. The criteria for classification as a discontinued operation is appropriate for this sale. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%. Indicate an appropriate presentation of these items in the income statement.
(Income Statement, EPS) Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2017.
Cash $50,000
Administrative expenses 100,000
Selling expenses 80,000
Net sales 540,000
Cost of goods sold 210,000
Cash dividends declared (2017) 20,000
Cash dividends paid (2017) 15,000
Discontinued operations (loss before income taxes) 40,000
Depreciation expense, not recorded in 2016 30,000
Retained earnings, December 31, 2016 90,000
Effective tax rate 30%
Instructions
Charlie Brown, the controller for Kelly Corporation, is preparing the company’s income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets’ lives, the losses would not be so great. Since depreciation is included among the company’s operating expenses, he wants to report the losses along with the company’s expenses, where he hopes it will not be noticed.
Instructions
(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.
Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000
Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000
Selling expenses 65,000 Casualty loss 50,000
Administrative expenses 48,000 Cash dividends declared 45,000
Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000
Interest Revenue 7,000
Effective tax rate of 34% on all items
Instructions
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