Chapter 4: Question 6 (page 179)
What is earnings management?
Earnings management is a tool to present the company's financial statements and activities in a positive manner.
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Discuss the appropriate treatment in the income statement for the following items:
(a) Loss on discontinued operations.
(b) Non-controlling interest allocation.
(c) Earnings per share.
(d) Gain on sale of equipment.
(Multiple-Step Statement, Retained Earnings Statement) The following information is related to Dickinson Company for 2017.
Retained earnings balance, January 1, 2017 \(980,000
Sales revenue 25,000,000
Cost of goods sold 16,000,000
Interest revenue 70,000
Selling and administrative expenses 4,700,000
Write-off of goodwill 820,000
Income taxes for 2017 1,244,000
Gain on the sale of investments 110,000
Loss due to flood damage 390,000
Loss on the disposition of the wholesale division (net of tax) 440,000
Loss on operations of the wholesale division (net of tax) 90,000XXX
Dividends declared on common stock \)250,000
Dividends declared on preferred stock 80,000
Dickinson Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2017, there were 500,000 shares of common stock outstanding all year.
Instructions
Prepare a multiple-step income statement and a retained earnings statement.
Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?
Question: What is the major distinction (a) between revenues and gains and (b) between expenses and losses?
The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.XXX
Instructions
From the foregoing information prepare an income statement for the year 2017 in single-step form.
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