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Chapter 4: 27Q (page 180)
What is meant by “tax allocation within a period”? What is the justification for such practice?
The tax allocation within a period refers to the technique of allocating income taxes. The justification for this approach is producing financial statements that disclose the appropriate relationship.
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Finley Corporation had income from continuing operations of \(10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of \)189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2017 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Finley had 10,000,000 shares of common stock outstanding during 2017. Prepare a partial income statement for Finley beginning with income from continuing operations.
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.)
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
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?
(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.
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