Chapter 4: Q3Q (page 179)
Identify at least two situations in which important changes in value are not reported in the income statement.
Unrealized gains or losses on investments that are available for sale and changes in the fair values of long-term liabilities are not recognized in the income statement.
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The following are selected ledger accounts of Spock Corporation on December 31, 2017.
Cash \( 185,000 Salaries and wages expense (sales) \)284,000
Inventory 535,000 Salaries and wages expense (office) 346,000
Sales revenue 4,275,000 Purchase returns 15,000
Unearned sales revenue 117,000 Sales returns and allowances 79,000
Purchases 2,786,000 Freight-in 72,000
Sales discounts 34,000 Accounts receivable 142,500
Purchase discounts 27,000 Sales commissions 83,000
Selling expenses 69,000 Telephone and Internet expense (sales) 17,000
Accounting and legal services 33,000 Utilities expense (office) 32,000
Insurance expense (office) 24,000 Miscellaneous office expenses 8,000
Advertising expense 54,000 Rent revenue 240,000
Delivery expense 93,000 Casualty loss (before tax) 70,000
Depreciation expense (office equipment) 48,000 Depreciation expense (sales equipment) 36,000
Common stock (\(10 par) 900,000 Interest expense 176,000
Spock’s effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is \)686,000.
Instructions
Prepare a condensed 2017 income statement for Spock Corporation.
How should correction of errors be reported in the financial statements?
Which of the following statements is correct regarding income reporting under IFRS?
(a) IFRS does not permit revaluation of property, plant, equipment, and intangible assets.
(b) IFRS provides the same options for reporting comprehensive income as GAAP.
(c) Companies must classify expenses by nature.
(d) IFRS provides a definition for all items presented in the income statement.
Question: Willie Nelson, Jr., controller for Jenkins Corporation, is preparing the company’s financial statements at year-end. Currently, he is focusing on the income statement and determining the format for reporting comprehensive income. During the year, the company earned net income of \(400,000 and had unrealized gains on available-for-sale securities of \)15,000. In the previous year, net income was $410,000, and the company had no unrealized gains or losses.
Instructions
(a) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the two statement format.
(b) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the one statement format.
(c) Which format should Nelson recommend?
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
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