Chapter 4: Q12Q (page 179)
What is the basis for distinguishing between operating and non operating items?
Operating items report only the principal operations, and non-operating items reports secondary activities of the company.
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The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.
Sales revenue \(1,578,500
Depreciation expense (office furniture and equipment) \)7,250
Sales discounts \(31,150
Cost of goods sold \)896,770
Property tax expense \(7,320
Salaries and wages expense (sales) \)56,260
Bad debt expense (selling) \(4,850
Sales commissions \)97,600
Maintenance and repairs expense (administration) \(9,130
Travel expense (salespersons) \)28,930
Delivery expense \(21,400
Office expense \)6,000
Entertainment expense \(14,820
Sales returns and allowances \)62,300
Telephone and Internet expense (sales) \(9,030
Dividends received \)38,000
Depreciation expense (sales equipment) \(4,980
Interest expense \)18,000
Maintenance and repairs expense (sales) \(6,200
Income tax expense \)102,000
Miscellaneous selling expenses \(4,715
Depreciation understatement due to error—2014 (net of tax) \)17,700
Office supplies used \(3,450
Telephone and Internet expense (administration) \)2,820
Dividends declared on preferred stock \(9,000
Dividends declared on common stock \)37,000
The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.
Instructions
(a) Using the multiple-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.
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.
Vandross Company has recorded bad debt expense in the past at a rate of 1½% of accounts receivable, based on an aging analysis. In 2017, Vandross decided to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been
On January 1, 2017, Richards Inc. had cash and common stock of
Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.
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