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Chapter 4: Q4-2IFRS (page 198)

Discuss the appropriate treatment in the income statement for the following items:

(a) Loss on discontinued operations.

(b) Non-controlling interest allocation.

Short Answer

Expert verified
  1. The loss on discontinued operations is deducted from the income from continuing operations.
  2. Non-controlling interest allocation is represented separately in the income statement.

Step by step solution

01

Definition of Income Statement

An income statement is a tabular presentation of the business entities’ expenses and revenues data that facilitates the management to compute the net income or net loss earned or incurred during one accounting period.

02

Treatment of loss on discontinued operations

The loss on discontinued operations is deducted from the income from continuing operations in an income statement. Also, the same deduction should benet of tax, or the company should subtract the applicable taxes from such losses to obtain accurate net income.

03

Treatment of non-controlling interest allocation

Non –controlling interest allocation represents the ownership position of the shareholders who own less than 50% of shares outstanding and do not allow to participate in the decision-making process.

The non-controlling interest is reported separately in the income statement asa profit’s share that belongs to the minority shareholders.

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Most popular questions from this chapter

What is the basis for distinguishing between operating and non operating items?

The non-controlling interest section of the income statement is:

(a) required under GAAP but not under IFRS.

(b) required under IFRS but not under GAAP.

(c) required under IFRS and GAAP.

(d) not reported under GAAP or IFRS.

(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

(Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December 31, 2017.

Interest revenue \(86,000 Accumulated depreciation equipment \)40,000

Cash \(51,000 Accumulated depreciation—buildings \)28,000

Sales revenue \(1,380,000 Notes receivable \)155,000

Accounts receivable \(150,000 Selling expenses \)194,000

Prepaid insurance \(20,000 Accounts payable \)170,000

Sales returns and allowances \(150,000 Bonds payable \)100,000

Allowance for doubtful accounts \(7,000 Administrative and general expense \)97,000

Sales discounts \(45,000 Accrued liabilities \)32,000

Land \(100,000 Interest expense \)60,000

Equipment \(200,000 Notes payable \)100,000

Buildings \(140,000 Loss from earthquake damage \)150,000

Cost of goods sold \(621,000 Common stock \)500,000

Retained earnings $21,000

Assume the total effective tax rate on all items is 34%.

Instructions

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

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

(b) Using the single-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.
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