For the year ending December 31, 2018, Benson Corporation had income from continuing operations before taxes of $1,360,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material. In November 2018, Benson sold its Pancake Village restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May 2018. The income from operations of the chain from January 1, 2018, through November was $176,000 and the loss on sale of the chainâs assets was $332,000. In 2018, Benson sold one of its six factories for $1,520,000. At the time of the sale, the factory had a book value of $1,260,000. The factory was not considered a component of the entity. In 2016, Bensonâs accountant omitted the annual adjustment for patent amortization expense of $136,000. The error was not discovered until December 2018. Required: Prepare Bensonâs income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2018. Assume an income tax rate of 20%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)
For the year ending December 31, 2018, Benson Corporation had income from continuing operations before taxes of $1,360,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material. In November 2018, Benson sold its Pancake Village restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May 2018. The income from operations of the chain from January 1, 2018, through November was $176,000 and the loss on sale of the chainâs assets was $332,000. In 2018, Benson sold one of its six factories for $1,520,000. At the time of the sale, the factory had a book value of $1,260,000. The factory was not considered a component of the entity. In 2016, Bensonâs accountant omitted the annual adjustment for patent amortization expense of $136,000. The error was not discovered until December 2018. Required: Prepare Bensonâs income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2018. Assume an income tax rate of 20%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)
Related questions
Kandon Enterprises, Inc., has two operating divisions; onemanufactures machinery and the other breeds and sells horses. Bothdivisions are considered separate components as defined bygenerally accepted accounting principles. The horse division hasbeen unprofitable, and on November 15, 2016, Kandon adopted aformal plan to sell the division. The sale was completed on April30, 2017. At December 31, 2016, the component was considered heldfor sale. |
On December 31, 2016, thecompanyâs fiscal year-end, the book value of the assets of thehorse division was $415,000. On that date, the fair value of theassets, less costs to sell, was $350,000. The before-tax loss fromoperations of the division for the year was $290,000. The companyâseffective tax rate is 40%. The after-tax income from continuingoperations for 2016 was $550,000. |
| Required: | |
| 1. | Prepare a partial income statement for 2016 beginning withincome from continuing operations. Ignore EPS disclosures.(Amounts to be deducted should be indicated with a minussign.) 2. Prepare a partial income statement for 2016beginning with income from continuing operations. Assuming that theestimated net fair value of the horse divisionâs assets was$700,000, instead of $350,000. Ignore EPS disclosures.(Amounts to be deducted should be indicated with a minussign.) |
Selected information about income statement accounts for theReed Company is presented below (the company's fiscal year ends onDecember 31): |
2013 | 2012 | |||||
Sales | $ | 5,200,000 | $ | 4,300,000 | ||
Cost of goods sold | 3,020,000 | 2,160,000 | ||||
Administrative expenses | 960,000 | 835,000 | ||||
Selling expenses | 520,000 | 472,000 | ||||
Interest revenue | 166,000 | 156,000 | ||||
Interest expense | 232,000 | 232,000 | ||||
Loss on sale of assets of discontinued component | 114,000 | â | ||||
On July 1, 2013, the company adopted a plan to discontinue adivision that qualifies as a component of an entity as defined byGAAP. The assets of the component were sold on September 30, 2013,for $114,000 less than their book value. Results of operations forthe component (included in the above account balances)were as follows: |
1/1/13-9/30/13 | 2012 | |||||
Sales | $ | 560,000 | $ | 660,000 | ||
Cost of goods sold | (370,000 | ) | (416,000 | ) | ||
Administrative expenses | (66,000 | ) | (56,000 | ) | ||
Selling expenses | (36,000 | ) | (46,000 | ) | ||
Operating income before taxes | $ | 88,000 | $ | 142,000 | ||
In addition to the account balances above, several eventsoccurred during 2013 that have not yet been reflected inthe above accounts: | |
1. | A fire caused $66,000 in uninsured damages to the main officebuilding. The fire was considered to be an infrequent but notunusual event. |
2. | An earthquake caused $116,000 in property damage to one ofReedâs factories. The amount of the loss is material and the eventis considered unusual and infrequent. |
3. | Inventory that had cost $56,000 had become obsolete because acompetitor introduced a better product. The inventory was sold asscrap for $7,000. |
4. | Income taxes have not yet been accrued. |
Required: |
Prepare a multiple-step income statement for the Reed Companyfor 2013, showing 2012 information in comparative format, includingincome taxes computed at 40% and EPS disclosures assuming 500,000shares of common stock. (Amounts to be deducted should beindicated with a minus sign.Round EPS answers to 2 decimalplaces.) |
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companyâs accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31, 2018.
| MUSIC-IS-US, INC. | |||||||
| TRIAL BALANCE | |||||||
| DECEMBER 31, 2018 | |||||||
| Cash | $ | 45,000 | |||||
| Marketable securities | 26,000 | ||||||
| Accounts receivable | 130,000 | ||||||
| Allowance for doubtful accounts | $ | 5,100 | |||||
| Merchandise inventory | 256,000 | ||||||
| Office supplies | 1,900 | ||||||
| Prepaid insurance | 7,040 | ||||||
| Building and fixtures | 1,794,000 | ||||||
| Accumulated depreciation | 797,000 | ||||||
| Land | 66,800 | ||||||
| Accounts payable | 69,000 | ||||||
| Unearned customer deposits | 7,800 | ||||||
| Income taxes payable | 75,000 | ||||||
| Capital stock | 960,000 | ||||||
| Retained earnings | 238,200 | ||||||
| Unrealized holding gain on investments | 5,100 | ||||||
| Sales | 1,651,340 | ||||||
| Cost of goods sold | 953,000 | ||||||
| Bank service charges | 200 | ||||||
| Uncollectible accounts expense | 8,300 | ||||||
| Salary and wages expense | 392,000 | ||||||
| Office supplies expense | 300 | ||||||
| Insurance expense | 6,000 | ||||||
| Utilities expense | 3,000 | ||||||
| Depreciation expense | 44,000 | ||||||
| Income tax expense | 75,000 | ||||||
| $ | 3,808,540 | $ | 3,808,540 | ||||
Other information pertaining to the companyâs trial balance is provided as follows.
1. The most recent bank statement reports a balance of $47,175. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bankâs monthly service charge was $25. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $4,100; no. 511, $9,400; and no. 521, $7,900. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.
2. Music-Is-Us has a portfolio of marketable securities that originally cost $20,000. As of December 31, the market value of these securities was $28,800. All short-term investments are classified as "available for sale."
3. During December, $6,100 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable led management to conclude that an allowance for doubtful accounts of $8,200 is needed at December 31, 2018.
4. The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,300. This amount is not considered significant relative to the total cost of inventory on hand.
5. At December 31, approximately $830 in office supplies remained on hand.
6. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2018. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
7. Depreciation expense related to the company's building and fixtures is $4,000 for the month ending December 31, 2018.
8. Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled âUnearned Customer Deposits.â As of December 31, $4,000 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.
9. Accrued income taxes payable for the entire year ending December 31, 2018, total $81,000. No income tax payments are due until early in 2019.
Please Prepare:
A Bank Reconciliation
Journal Entries
Adjusting Entries
