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Chapter 4: Q12Q (page 179)
What is the basis for distinguishing between operating and non operating items?
Operating items report only the principal operations, and non-operating items reports secondary activities of the company.
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What is the basis for distinguishing between operating and non-operating items?
Question: What is meant by the terms elements and items as they relate to the income statement? Why might items have to be disclosed in the income statement?
The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.
Sales revenue \(1,578,500
Depreciation expense (office furniture and equipment) \)7,250
Sales discounts \(31,150
Cost of goods sold \)896,770
Property tax expense \(7,320
Salaries and wages expense (sales) \)56,260
Bad debt expense (selling) \(4,850
Sales commissions \)97,600
Maintenance and repairs expense (administration) \(9,130
Travel expense (salespersons) \)28,930
Delivery expense \(21,400
Office expense \)6,000
Entertainment expense \(14,820
Sales returns and allowances \)62,300
Telephone and Internet expense (sales) \(9,030
Dividends received \)38,000
Depreciation expense (sales equipment) \(4,980
Interest expense \)18,000
Maintenance and repairs expense (sales) \(6,200
Income tax expense \)102,000
Miscellaneous selling expenses \(4,715
Depreciation understatement due to error—2014 (net of tax) \)17,700
Office supplies used \(3,450
Telephone and Internet expense (administration) \)2,820
Dividends declared on preferred stock \(9,000
Dividends declared on common stock \)37,000
The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.
Instructions
(a) Using the multiple-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.
Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.
Retained earnings, January 1, 2017 \(257,600
Add:
Gain on sale of investments (net of tax) \)41,200
Net income 84,500
Refund on litigation with government, related to
the year 2014 (net of tax) 21,600
Recognition of income earned in 2016, but omitted
from income statement in that year (net of tax) 25,400 172,700
430,300
Deduct:
Loss on discontinued operations (net of tax) 35,000
Write-off of goodwill (net of tax) 60,000
Cumulative effect on income of prior years in changing
from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200
Cash dividends declared 32,000 150,200
Retained earnings, December 31, 2017 $280,100
Instructions
Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income.
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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