Chapter 4: 14Q (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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Finley Corporation had income from continuing operations of \(10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of \)189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2017 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Finley had 10,000,000 shares of common stock outstanding during 2017. Prepare a partial income statement for Finley beginning with income from continuing operations.
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.
In 2017, Hollis Corporation reported net income of \(1,000,000. It declared and paid preferred stock dividends of \)250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.
Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2017. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2014.
What are the advantages and disadvantages of the single-step income statement?
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