Exam 3: Statements of Income and Comprehensive Income

A company showing Cost of Goods Sold as a line item on the income statement has chosen to show its expense by nature.

ABC Inc commenced operations on January 1, 2012. The following account balances were taken from the company's December 31^st Balance Sheet, which reflected amounts resulting from the company's first year of operations: Common Shares (no par, 100,000 shares issued and outstanding) $500,000 Retained Earnings $150,000 Accumulated Other Comprehensive Income (Loss) $45,000* * Resulting from an unrealized gain due to the appreciation in market value of some of its Available-for-Sale Financial Assets. This amount is net of tax, and was subsequently realized during 2013 when the assets were sold. Thus, it is included in the company's 2013 Net Income. During 2013, ABC Inc. had a Net Income figure of $120,000. At the end of 2013, the company reported a Foreign Currency Translation loss of $60,000 (net of tax). The company is subject to an effective tax rate of 40%. Given the above information, prepare the Shareholder Equity section of ABC Inc's December 31^st, 2013 balance sheet.

Turnbull Ltd. decided on January 1, 2007 to discontinue its plastic-making division. The division, properly identified as a reportable segment, was sold on June 1, 2001. Division assets with a carrying value of $800,000 were sold for $500,000. Operating income from January 1, to May 30, 2007 for the division amounted to $125,000. Income taxes are at the rate of 45%. What amount should be reported on Turnbull's income statement for the year ended December 31, 2007 under the caption "discontinued operations"?

All OCI items are the result of transactions with owners.

A partial income statement for a company's most recent fiscal year follows: Sales \ 800,000 Inventory, January 1 \ 420,000 Add purchases () Goods available for sale (b) Inventory, December 31 470,000 Cost of goods sold (c) Gross margin 250,000 Deduct expenses: Selling (d) Administrative (e) Income before taxes (f) Income taxes (g) Net income (h) Earnings per share (5,000 shares outstanding) \ 4.20 Additional data: Selling expenses are 20 percent of sales, administrative expenses are 10 percent of cost of goods sold; the income tax rate is 40 percent. Required: Supply dollar amounts for blanks a through h.

A natural disaster, such as a flood, will always be considered unusual or infrequent.

Under IFRS, an expense item must be both presented and disclosed by nature and function.

Fax Inc. earned $90,000 and $110,000 of income from continuing operations after taxes in Years 1 and 2, respectively. The tax rate is 40%. The firm decided to sell one of its business segments on November 1, Year 1. The expected disposal date is February 1, Year 2. The segment's income was a pre-tax loss of $20,000 (not included in income from continuing operations) for Year 1 through November 1, Year 1. However, the segment earned $30,000 pre-tax income for the remainder of Year 1 and was expected to earn $25,000 pre-tax in Year 2 to the disposal date. The selling price of the segment is $100,000 and the book value of net assets is $80,000. During Year 2, the segment actually earned $35,000 pre-tax. For both years, prepare the bottom portion of the income statement including a section for discontinued operations for this firm.

Under IFRS, depreciation expense and employee benefits expense may be shown on the face of the income statement OR may be disclosed separately in the notes to the financial statements.

Atanak Inc., decided to dispose of its auto parts segment on March 1, Year 1 for $200,000 (book value of net assets, $150,000). The disposal date is June 1, Year 2. Income of the segment for the first two months of Year 1 was $33,000; but for the remainder of Year 1 was a loss of $107,000. Estimated income for Year 2 to the disposal date is $64,000. Required: Ignoring taxes, calculate the income or loss from discontinued operations and any gain or loss from the disposal of discontinued operations on the income statement of Atanak, for the year ended December 31, Year 1.

A company started business on January 1, 2006. At the end of 2006, the accounting records provided the following unadjusted and pre-tax amounts: Sales revenue (cash), $186,000; cost of goods sold, $100,000; expenses (cash), $40,000; accrued wages, $6,000; accrued rent revenue, $2,000; and a 40 percent average income tax rate. What was the net income on accrual basis?

Finance costs must always be shown on the face of the income statement under IFRS.

Increases in the recoverable value of a total disposal group are:

The realization of a previously unrealized gain or loss during a given period has no effect on the company's total shareholder equity.

Earnings per share represent the portion of the income for a period attributable to a share of voting capital of an enterprise.

Total Comprehensive income must be allocated to both the parent and the non-controlling interest (NCI) shareholder groups.

A company had 30,000 shares of common stock outstanding on January 1, 2006. On March 1, the company issued an additional 18,000 shares of common stock. Net income for the year was $99,000. The earnings per share were (round to the nearest cent):

An income statement showing depreciation expense a line item is showing its expenses by nature.

In preparing the adjusting journal entries for Year 4, the accountant for a large local law firm discovered that depreciation on furniture, fixtures and office equipment was understated by $40,000 for Year 3. The previous accountant had not depreciated a leasehold improvement because she believed that the improvement would revert to the office owner at the end of the lease term. The present accountant, knowing better, prepared the journal entry to make the correction. That entry, assuming a tax rate of 30%, would include which of the following:

The concept of intra-period tax allocation is based on the going concern principle.