Learning Materials
Features
Discover
Chapter 4: Question 37Q (page 180)
How should the disposal of a component of a business be disclosed in the income statement?
Disclosure of a disposed component is based upon its nature, i.e., continued or discontinued.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Wade Corp. has 150,000 shares of common stock outstanding. In 2017, the company reports income from continuing operations before income tax of \(1,210,000. Additional transactions not considered in the \)1,210,000 are as follows.
1. In 2017, Wade Corp. sold equipment for \(40,000. The machine had originally cost \)80,000 and had accumulated depreciation of \(30,000. The gain or loss is considered non-recurring.
2. The company discontinued operations of one of its subsidiaries during the current year at a loss of \)190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was \(90,000 before taxes; the loss from disposal of the subsidiary was \)100,000 before taxes.
3. An internal audit discovered that amortization of intangible assets was understated by \(35,000 (net of tax) in a prior period. The amount was charged against retained earnings.
4. The company recorded a non-recurring gain of \)125,000 on the condemnation of some of its property (included in the $1,210,000).
Instructions
Analyze the above information and prepare an income statement for the year 2017, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.)
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.
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.
Presented below is information related to Viel Company on December 31, 2017, the end of its first year of operations.
Sales revenue $310,000
Cost of goods sold 140,000
Selling and administrative expenses 50,000
Gain on sale of plant assets 30,000
Unrealized gain on non-trading equity securities 10,000
Interest expense 6,000
Loss on discontinued operations 12,000
Allocation to non-controlling interest 40,000
Dividends declared and paid 5,000
Instructions
Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company controlling shareholders, (d) comprehensive income, and (e) retained earnings balance on December 31, 2017. (Ignore income taxes.)
How can information based on past transactions be used to predict future cash flows?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App