Chapter 4: Q2Q (page 179)
How can information based on past transactions be used to predict future cash flows?
Past transactions are useful in predicting important trends. It is also helpful in providing information regarding the future performance of cash flows.
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Which statement is correct regarding IFRS?
How can information based on past transactions be used to predict future cash flows?
On January 30, 2016, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2017, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should this settlement be reported in the 2017 financial statements? Discuss.
Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?
The following financial statement was prepared by employees of Walters Corporation.
WALTERS CORPORATION
INCOME STATEMENT
THE YEAR ENDED DECEMBER 31, 2017
Revenues
Gross sales, including sales taxes \(1,044,300
Less: Returns, allowances, and cash discounts 56,200
Net sales 988,100
Dividends, interest, and purchase discounts 30,250
Recoveries of accounts written off in prior years 13,850
Total revenues 1,032,200
Costs and expenses
Cost of goods sold, including sales taxes 465,900
Salaries and related payroll expenses 60,500
Rent 19,100
Delivery expense and freight in 3,400
Bad debt expense 27,800
Total costs and expenses 576,700
Income before other items 455,500
Other items
Loss on discontinued styles (Note 1) 71,500
Loss on sale of marketable securities (Note 2) 39,050
Loss on sale of warehouse (Note 3) 86,350
Total other items 196,900
Net income \)258,600
Net income per share of common stock \(2.30
Note 1: New styles and rapidly changing consumer preferences resulted in a \)71,500 loss on the disposal of discontinued styles and related accessories.
Note 2: The Corporation sold an investment in marketable securities at a loss of \(39,050. The corporation normally sells securities of this nature.
Note 3: The Corporation sold one of its warehouses at an \)86,350 loss.
Instructions
Identify and discuss the weaknesses in classification and disclosure in the single-step income statement above. You should explain why these treatments are weaknesses and what the proper presentation of the items would be in accordance with GAAP.
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