Chapter 4: 27Q (page 180)
What is meant by “tax allocation within a period”? What is the justification for such practice?
The tax allocation within a period refers to the technique of allocating income taxes. The justification for this approach is producing financial statements that disclose the appropriate relationship.
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The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations \(187,000, income tax applicable to loss on discontinued operations \)25,500, and unrealized holding gain on available-for-sale securities (net of tax) \(15,000.
Gain on sale of equipment \)95,000 Cash dividends declared $150,000
Loss on discontinued operations75,000 Retained earnings January1,2017 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Loss on write-down of inventory 60,000 Sales revenue 1,900,000
Shares outstanding during 2017 were 100,000.
Instructions
Identify at least two situations in which important changes in value are not reported in the income statement.
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?
Qualls Corporation reported 2017 earnings per share of \(7.21. In 2018, Qualls reported earnings per share as follows.
On income from continuing operations \)6.40
On discontinued operations \(1.88
On net income \)8.28
Is the increase in earnings per share from \(7.21 to \)8.28 a favorable trend?
Presented below are certain account balances of Paczki Products Co.
Rent revenue \(6,500 Sales discounts \)7,800
Interest expense \(12,700 Selling expenses \)99,400
Beginning retained earnings \(114,400 Sales revenue \)390,000
Ending retained earnings \(125,000Income tax expense \)31,000
Dividend revenue \(71,000Cost of goods sold \)184,000
Sales returns and allowances \(12,400Administrative expenses \)82,500
Allocation to non controlling interest $17,000
Instructions
From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.
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