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Chapter 4: Question 31Q (page 180)

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.

Short Answer

Expert verified

Yes, the company must report the outcomes of closing other operations in the income statement.

Step by step solution

01

Meaning of Multi-Step Income Statement

A multi-step income statement reports transactions by bifurcating the business operations into two parts. It includes continued and discontinued operations. The loss and gain associated with the discontinued section are reported separately in the income statement.

02

Reporting of closing business operations

The company should disclose the gain earned or loss incurred from the disposal of its other functions.

Also, such gains or losses should be disclosed in the discontinued operations section of the income statement after reporting the necessary information of continuing operations.

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Most popular questions from this chapter

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.

Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.

Increase Increase

(Decrease) (Decrease)

Cash \(79,000 Accounts Payable

Accounts Receivable (net) \)45,000 Bonds Payable \(82,000

Inventory \)127,000 Common Stock \(125,000

Investments (47,000) Paid-In Capital in Excess of Par \)13,000

Instructions

Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.

(Single-Step Statement, Retained Earnings Statement, Periodic Inventory) Presented below is the trial balance of Thompson Corporation on December 31, 2017.

THOMPSON CORPORATION
TRIAL BALANCE

DECEMBER 31, 2017

Debit (\()

Credit (\))

Purchase Discounts

\(10,000

Cash

\)189,700

Accounts receivables

105,000

Rent Revenue

18,000

Retained Earnings

160,000

Salaries and Wages payable

18,000

Sales Revenue

1,100,000

Notes Receivables

110,000

Accounts payable

49,000

Accumulated Depreciation

28,000

Sales discount

14,500

Sales return and allowances

17,500

Notes payable

70,000

Selling expenses

232,000

Administrative expenses

99,000

Common Stock

300,000

Income tax expenses

53,900

Cash Dividends

45,000

Allowance for Doubtful Accounts

5,000

Supplies

14,000

Freight-In

20,000

Land

70,000

Equipment

140,000

Bonds Payable

100,000

Gain on Sale of Land

30,000

Accumulated Depreciation

19,600

Inventory

89,000

Buildings

98,000

Purchases

610,000

Totals

\(1,907,600

\)1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of \(64,000; thus, cost of goods sold for 2017 is \)645,000.

Instructions

Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends. Thirty thousand shares of common stock were outstanding the entire year.

Question: (Earnings per Share) The stockholders’ equity section of Hendly Corporation appears below as of December 31, 2017.

8% preferred stock, \(50 par value, authorized

100,000 shares, outstanding 90,000 shares \)4,500,000

Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000

Additional paid-in capital 20,500,000

Retained earnings \)134,000,000

Net income 33,000,000167,000,000

\(202,000,000

Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.

Instructions

Compute earnings per share data as it should appear on the income statement of Hendly Corporation.

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

  1. 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.
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