PLEASE EXPLAIN
While preparing the income statement for WESTON, Inc., the accountant had some doubts about the appropriate accounting treatment of the five items listed below during the fiscal year ending December 31, 2016. Assume a tax rate of 35 percent.
a. Office equipment purchased April 1, 2016 for $60,000 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. WESTON uses the straight-line method to depreciate office equipment for financial reporting purposes.
b. The corporation disposed of its sporting goods division during 2016. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $110,000 before taxes and a loss of $80,000 before taxes on the disposal of the division. All of these events occurred in 2016 and have not been recorded.
c. The company recorded advances of $12,000 to employees made in December 31, 2016 as Salaries and Wages Expense.
d. Dividends of $10,000 during 2016 were recorded as an operating expense.
e. In 2016, WESTON changed its method of accounting for inventory from the first-in-first-out method to the average cost method. Inventory in 2016 was correctly recorded using the average cost method. The effect of this change on prior years is to increase 2014 cost of goods sold by $60,000 (before taxes) and decrease 2015 cost of good sold by $20,000 (before taxes). Assume WESTON, Inc. began operations on January 1, 2014.
Instructions
1. For each item, record corrections to income from continuing operations before taxes, if any.
2. State where the items that do not affect income from continuing operations should be shown.
PLEASE EXPLAIN
While preparing the income statement for WESTON, Inc., the accountant had some doubts about the appropriate accounting treatment of the five items listed below during the fiscal year ending December 31, 2016. Assume a tax rate of 35 percent.
a. Office equipment purchased April 1, 2016 for $60,000 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. WESTON uses the straight-line method to depreciate office equipment for financial reporting purposes.
b. The corporation disposed of its sporting goods division during 2016. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $110,000 before taxes and a loss of $80,000 before taxes on the disposal of the division. All of these events occurred in 2016 and have not been recorded.
c. The company recorded advances of $12,000 to employees made in December 31, 2016 as Salaries and Wages Expense.
d. Dividends of $10,000 during 2016 were recorded as an operating expense.
e. In 2016, WESTON changed its method of accounting for inventory from the first-in-first-out method to the average cost method. Inventory in 2016 was correctly recorded using the average cost method. The effect of this change on prior years is to increase 2014 cost of goods sold by $60,000 (before taxes) and decrease 2015 cost of good sold by $20,000 (before taxes). Assume WESTON, Inc. began operations on January 1, 2014.
Instructions
1. For each item, record corrections to income from continuing operations before taxes, if any.
2. State where the items that do not affect income from continuing operations should be shown.
Related questions
The following income statement items appeared on the adjustedtrial balance of Schembri Manufacturing Corporation for the yearended December 31, 2016 ($ in 000s): sales revenue, $19,100; costof goods sold, $8,100; selling expenses, $1,490; general andadministrative expenses, $990; interest revenue, $250; interestexpense, $220. Income taxes have not yet been recorded. Thecompanyâs income tax rate is 30% on all items of income or loss.These revenue and expense items appear in the companyâs incomestatement every year. The companyâs controller, however, has askedfor your help in determining the appropriate treatment of thefollowing nonrecurring transactions that also occurred during 2016($ in 000s). All transactions are material in amount. |
| 1. | Investments were sold during the year at a loss of $410.Schembri also had unrealized gains of $510 for the year oninvestments. |
| 2. | One of the companyâs factorieswas closed during the year. Restructuring costs incurred were$2,200. |
| 3. | During the year, Schembri completed the sale of one of itsoperating divisions that qualifies as a component of the entityaccording to GAAP. The division had incurred a loss from operationsof $700 in 2016 prior to the sale, and its assets were sold at again of $1,700. |
| 4. | In 2016, the companyâs accountant discovered that depreciationexpense in 2015 for the office building was understated by$390. |
| 5. | Foreign currency translationlosses for the year totaled $430. |
| Required: | |||
| 1. | Prepare Schembriâs single, continuous multiple-step statement ofcomprehensive income for 2016, including basic earnings per sharedisclosures. One million shares of common stock were outstanding atthe beginning of the year and an additional 800,000 shares wereissued on July 1, 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers in thousands. RoundEPS answers to 2 decimal places.)
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Wade Corp. has 150,000 shares of common stock outstanding. In2017, the company reports income from continuing operations beforeincome tax of $1,210,000. Additional transactions not considered inthe $1,210,000 are as follows.
| 1. | In 2017, Wade Corp. sold equipment for $40,000. The machine hadoriginally 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 subsidiariesduring the current year at a loss of $190,000 before taxes. Assumethat this transaction meets the criteria for discontinuedoperations. The loss from operations of the discontinued subsidiarywas $90,000 before taxes; the loss from disposal of the subsidiarywas $100,000 before taxes. | |
| 3. | An internal audit discovered that amortization of intangibleassets was understated by $35,000 (net of tax) in a prior period.The amount was charged against retained earnings. | |
| 4. | The company had a non-recurring gain of $125,000 on thecondemnation of some of its property (included in the$1,210,000). |
Analyze the above information and prepare an income statement forthe year 2017, starting with income from continuing operationsbefore income tax. Compute earnings per share as it should be shownon the face of the income statement. (Assume a total effective taxrate of 38% on all items, unless otherwise indicated.)(Round earnings per share to 2 decimal places, e.g.1.47.)
