Exam 3: Statements of Income and Comprehensive Income

Basic and fully-diluted earnings per share under IFRS must be shown for:

Once an asset has been designated as held for sale, this classification is irrevocable.

In 2012, management of Simolin Company changed from straight-line to double-declining balance depreciation. The total difference in depreciation for all years through 2012 was $54,000 and for 2013 the difference was $6,200. The tax rate is 30%. Calculate the amount by which retained earnings at the start of 2013 should be adjusted.

A review of the December 31, 2006, financial statements of a corporation revealed that under the caption "Exceptional and infrequent losses," a total of $130,000 was reported. Further analysis revealed that the $130,000 in losses was comprised of the following items: (1) A loss of $25,000 incurred in the abandonment of equipment formerly used in the business. (2) An unusual and infrequent occurrence, a loss of $37,500 was sustained as a result of damage to a warehouse by a falling meteorite. (3) During 2006, several factories were shut down during a major strike by employees. Shutdown expenses totalled $60,000. (4) Uncollectible accounts receivable of $7,500 were written off as uncollectible. (5) Foreign exchange - translation gains: $10,000 (6) Decline in market value of Available-for-sale securities: $15,000 Ignoring income taxes, what amount would be shown as Other Comprehensive Income (Loss) on the statement of Comprehensive Income?

A corporation started operations on January 1, 2001; the reporting period ends December 31. At the end of 2001, the company's records reflected the following correct amounts after all adjusting entries: Sales revenue, $400,000; Cost of goods sold, $232,500; Other expenses (total), $70,000; Accrued wages payable, $1,500; Accounts payable, $6,000 and Accounts receivable, $4,500. (a) Net income, accrual basis, was $_______________. (b) Net income, cash basis $__________________.

Beaulieu Enterprises Inc., decided to dispose of its men's fashions segment on March 1, Year 1 for $100,000 (book value of net assets, $80,000). The disposal date is June 1, Year 2. Income of the segment for the first two months of Year 1 was $33,000; and for the remainder of Year 1, $107,000. Estimated income for Year 2 to the disposal date is a loss of $40,000. 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 Beaulieu, for the year ended December 31, Year 1.

On January 2, 2008, a repair cost of $4,000 was incorrectly debited to the related machinery account. The machine was acquired January 1, 2005. Machinery is being depreciated on a straight-line basis at 10 percent per year with a 10 percent residual value. Give the correcting entry on January 2, 2011 (the date the error was discovered), ignoring the income tax effect.

The issuance of new common shares and retirement of outstanding shares would be reported in comprehensive income.

The management of Small Corporation (a privately held Canadian entity) has asked you to critique its income statement for the current year. It was prepared in single-step form by an employee as shown below. List and number your criticisms of the employee's effort. Do not look for math errors or cite the arithmetic effects of reclassifying items. Small Corporation Statement of Earnings August 31, 2010 Sales less returns and allowances \ 4,720,000 Deduct cost of goods sold: Inventory, August 31,2010 \ 440,000 Add purchases 2,930,000 Freight-out (on goods shipped to customers) 180,000 Goods available for sale 3,550,000 Inventory, September 1, 2009 377,000 Cost of sales 3,173,000 Operating profit \ 1,547,000 Deduct expenses: Salaries and related employment costs \ 610,000 Utilities 105,000 Insurance 44,000 Bad debt expense 53,500 Freight-in (on purchases) 101,200 Sales taxes 94,400 Taxes other than on sales and on income 98,000 Loss on uninsured flood damage (infrequent and unusual in this case) 200,000 Miscellaneous expenses 87,900 Total expenses 1,394,000 Net profit before tax \ 153,000 Income tax 71,000 Net profit 82,000

Supply dollar amounts for blanks (a) through (h) in the following partial income statement: Sales (a) Inventory, January 1 (b) Purchases \ 300,000 Goods available (c) Inventory, December 31 (d) Cost of goods sold \ 210,800 Operating expenses (e) Income before taxes (f) Income tax expense (g) Net income (h) Earnings per share (14,000 shares outstanding) \ 3.40 Additional data: 1) The income tax rate is 30 percent; 2) operating expenses amount to six times the dollar amount of income tax expense; 3) Ending inventory is five times the amount of beginning inventory.

Little uniformity is found on statements of income with respect to classification of bad debt expense, but the circumstances in a given situation may indicate that some particular classification is appropriate. If the credit and collection function is under the sales department, bad debt expense should be classified as a:

The following data are available for 2001: Correction of prior years' error, (a debit, pre-tax and subject to income tax), $22,000; Net income (after tax), $50,000; Dividends, declared $11,000; and Income tax rate, 40 percent. Prepare a retained earnings statement for the year ended December 31, 2001. The balance January 1, 2001, as previously reported is $108,000

An event is considered to occur infrequently if it would not reasonably be expected to recur in the foreseeable future, taking into account the entity's operating environment.

After an asset held for sale has been written down, it must written back if its fair value less costs to sell subsequently increases under IFRS.

Unusual or infrequent items should be reported separately, but not net of income tax.

On May 1, 2005, a company purchased prepaid insurance, covering the next three years, for $10,800. The entire amount was debited to insurance expense at that time. On January 10, 2007, the error was discovered. The average income tax rate was 40 percent. The correction of prior years' error (including its tax effect) on January 10, 2007, is:

A company acquired a machine for use in a business at the beginning of year 1: Cost, $110,000; Estimated life, 10 years; no residual value (straight-line depreciation). Required: Two separate and independent cases, involving accounting changes with respect to the machine are given below. For each case, respond to the following questions: (1) What type of change is involved, if any? (2) Give the entry to reflect the change. If none is required, give the reason. Ignore any tax effect. (3) Give the entry for depreciation in year 5. CASE A At the end of the 5^th year, it was discovered that no depreciation had ever been recorded: (1) Type of change: ____________________________________________. (2) Correcting entry: (3) Adjusting entry, depreciation: CASE B Assume depreciation has been recorded in the usual manner during the first four years. At the end of the 5^th year, the estimated total life was changed from 10 to 15 years. (1) Type of change: ____________________________________________. (2) Correcting entry: (3) Adjusting entry, depreciation:

Accounting income is a concept in which:

The presentation of both net income and other comprehensive income is required under both IFRS and ASPE.

Correction of prior years' errors and changes in accounting principles are never reported on the statement of income.