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Exam 3: Statements of Income and Comprehensive Income

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Question 51

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When a segment of a business has been discontinued during the year and is sold at the end of that same year,the income or loss from the discontinued operations,one of the three amounts typically reported in the income statement,would not include:

A) the income or loss from operating the segment the entire year
B) the income or loss from operating the segment from the beginning of the year to the date the decision was made to dispose of the segment
C) the income or loss from operating the segment from the date the decision was made to dispose of the segment to the end of the year
D) the difference between the sales price of the segment and the segment's book value

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Question 52

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Correction of prior years' errors and changes in accounting principles are not recorded net of any income tax effects.

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Question 53

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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.

Supply dollar amounts for blanks (a) through (h) in the following partial income statement: 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.

Which of the following statements is/are correct?

Correction of prior years' errors directly affect the:

Munitions Inc.committed to sell its trade magazine division for $700,000 on October 1,Year 1.The book value of the division's net assets was $800,000.The disposal date is expected to be April 1,Year 2.Year 1 income of the division to October 1,Year 1 was a $30,000 loss,and income for the remainder of the year was $10,000.However,Munitions estimates that the division will lose $25,000 during the remainder of the phase-out period in Year 2.Ignoring taxes choose the correct reporting for discontinued operations in the income statement of Munitions,Inc.,for the year ended December 31,Year 1. $\begin{array} { | l| l| l | } \hline & \text { Income (loss) from } & \text { Gain (loss) from disposal } \\\hline & \text { Discontinued operations } & \text { of discontinued operations } \\\hline 1 & ( \$ 30,000 ) & ( \$ 115,000 ) \\\hline 2 & ( \$ 30,000 ) & ( \$ 100,000 ) \\\hline 3 & ( \$ 30,000 ) & ( \$ 90,000 ) \\\hline 4 & ( \$ 45,000 ) & ( \$ 100,000 ) \\\hline\end{array}$

Interperiod tax allocation refers to the deferral and allocation of income tax expense to future periods while intraperiod tax allocation refers to the process of splitting up income tax expense across the different income statement categories.

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

A transaction that is material in amount,unusual in nature,and infrequent in occurrence,should be presented in the statement of income separately as a component of income:

Once an asset has been abandoned,amortization stops and it is written down to its recoverable value.

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

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:

Given the following amounts from an income statement: The amount shown on a single-step format income statement for income from continuing operations items would be:

Constructive obligations:

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

The date on which a gain or loss from the disposal of a segment of a business is measured is the:

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 2001,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?

During Year 3,Stratton Inc.decided to change the useful life and residual value on equipment costing $400,000,based on new information about the equipment's operating capacity and market value.The equipment was purchased January 1,Year 2.The original estimated useful life and residual value were 10 years and $40,000 respectively; the new estimates are 8 years total useful life rather than 10 years,and $20,000 residual value.What is depreciation expense for the year ended December 31,Year 3 (rounded to the nearest dollar) ?

Jax 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 $130,000.During Year 2,the segment actually earned $40,000 pre-tax. For both years,prepare the bottom portion of the income statement including a section for discontinued operations for this firm.