Chapter 4: Question 21Q (page 181)
Cooper Investments reported an unusual gain from the sale of certain assets in its 2017 income statement. How does intra period tax allocation affect the reporting of this unusual gain?
Any unusual gain does not affect the reporting of usual gain.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Discuss the appropriate treatment in the financial statements of each of the following.
(a) Gain on sale of investment securities.
(b) A profit-sharing bonus to employees computed as a percentage of net income.
(c) Additional depreciation on factory machinery because of an error in computing depreciation for the previous year.
(d) Rent received from subletting a portion of the office space.
(e) A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000.
(f) A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.
Identify at least two situations in which important changes in value are not reported in the income statement.
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 can earnings management affect the quality of earnings?
Question: At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.
10% cumulative preferred stock, \(100 par, 107,500 shares \)10,750,000
Common stock, \(5 par, 4,000,000 shares 20,000,000
During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.
Income from continuing operations before taxes \)23,650,000
Discontinued operations (loss before taxes) \(3,225,000
Preferred dividends declared \)1,075,000
Common dividends declared $2,200,000
Effective tax rate 35%
Instructions
Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)
What do you think about this solution?
We value your feedback to improve our textbook solutions.
