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Chapter 4: Question 21Q (page 181)

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?

Short Answer

Expert verified

Any unusual gain does not affect the reporting of usual gain.

Step by step solution

01

Meaning of Unusual gain

Unusual gains refer to the infrequent items that are separately reported to ensure the transparency of financial reporting. It is also measured in terms of profit other than core operation.

02

Explanation for affecting the intra period tax allocation

The FASB prohibited the net of tax treatment for unusual items so that users can differentiate between items that are infrequent or unusual. Net of tax treatment is for prior period adjustments and discontinued operations. So intra period tax allocation does not affect the reporting of an unusual gain.

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Most popular questions from this chapter

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.

Distinguish between the modified all-inclusive income statement and the current operating performance income statement. According to present generally accepted accounting principles, which is recommended? Explain.

What is meant by “tax allocation within a period”? What is the justification for such practice?

Question: Willie Nelson, Jr., controller for Jenkins Corporation, is preparing the company’s financial statements at year-end. Currently, he is focusing on the income statement and determining the format for reporting comprehensive income. During the year, the company earned net income of \(400,000 and had unrealized gains on available-for-sale securities of \)15,000. In the previous year, net income was $410,000, and the company had no unrealized gains or losses.

Instructions

(a) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the two statement format.

(b) Show how income and comprehensive income will be reported on a comparative basis for the current and prior years, using the one statement format.

(c) Which format should Nelson recommend?

In 2017, Hollis Corporation reported net income of \(1,000,000. It declared and paid preferred stock dividends of \)250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.

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