Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q6P_(b) (page 189)

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

(b) State where the items that do not appear in the corrected retained earnings statement should be shown

Short Answer

Expert verified

All the items should be reported in the income statement according to their nature and their section, such as usual or unusual items, extraordinary items, continuing operations, and many more

Step by step solution

01

Components of the Income Statement

An income statement comprises expenses and revenues that lead to the computation of profits or losses. In addition, various expenses, gains, losses, and revenues are further bifurcated into different categories, such as continuing and discontinued operations.

02

Reporting of items

  • The gain on sale ofinvestments should not be included in the usual activities of the business but reported under the extraordinary items.

  • Refund on litigation with the government should be reported in the income statement’sunusual items.

  • Under the unusual items section, writing offgoodwillmust be reported in the income statement.

  • Loss on discontinued operations should be reported in the income statement separately from continuing operations.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Stacy Corporation had income from operations of \(7,200,000. In addition, it suffered an unusual and infrequent pretax loss of \)770,000 from a volcano eruption, interest revenue of \(17,000, and a write-down on buildings of \)53,000. The corporation's tax rate is 30%. Prepare a partial income statement for Stacy beginning with income from operations. The corporation had 5,000,000 shares of common stock outstanding during 2017.

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: What is the major distinction (a) between revenues and gains and (b) between expenses and losses?

Lebron Co. owns most but not all of the shares of its subsidiary Bryant Inc. Lebron reported net income of \(124,700. The amount to be attributed to the noncontrolling interest in Bryant is \)30,000. Indicate how Lebron will report the noncontrolling interest in its income statement.

Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. These two closings do not represent a major shift in strategy for the company. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Discuss.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Operations

Read Explanation

Organizational Communication

Read Explanation

Strategic Analysis

Read Explanation

Strategic Direction

Read Explanation

Operational Management

Read Explanation

Change Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free