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Concept Introduction: Income statements can be created in a single or multiple-step process. All revenues and gains included in income from continuing operations are listed in a single step, followed by a grouping of expenses and losses. The multiple-step format, on the other hand, reports a series of intermediate subtotals such as gross profit, operating income, and income before taxes.
The partial income statement for 2021 beginning with income from continuing operations.
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Concept Introduction: Income statements can be created in a single or multiple-step process. All revenues and gains included in income from continuing operations are listed in a single step, followed by a grouping of expenses and losses. The multiple-step format, on the other hand, reports a series of intermediate subtotals such as gross profit, operating income, and income before taxes.
The partial income statement for 2021 beginning with income from continuing operations.
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- Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended December 31, 2020, and 3,330,000 for the year ended December 31, 2019. Additional information is as follows: Capital expenditures were 2,800,000 in 2020 and 4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for 1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life. Gray made an error in its financial statements that should be regarded as material. A payment of 180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019. The allowance for doubtful accounts reflected in Grays financial statements was 7,000 at December 31, 2020, and 97,000 at December 31, 2019. During 2020, 90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were 58,500,000 for the year ended December 31, 2020, and 49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales. A review of the estimated warranty liability at December 31, 2020, which is included in other liabilities in Grays financial statements, has disclosed that this estimated liability should be increased 170,000. Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of 230,000 and in January 2019 at a cost of 280,000. Furnace B was relined for the first time in January 2020 at a cost of 300,000. In Grays financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Grays management feels it would be preferable to capitalize and depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full years depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP. Required: 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and deferred tax considerations in your answer. The worksheet should have the following format: 2. As of January 1, 2020, compute the retrospective adjustment of retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.arrow_forwardOn December 31, 2021, the end of the fiscal year, Revolutionary Industries completed the sale of it's robotics business for $9 million. The robotics business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $7 million. The income from opertations of the segment during 2021 was $4 million. Pretax income from continuing operations for the year totaled $12 million. The income tax rate is 25%. prepare the lower protion of the 2021 income statment beginning with income from continuing operations before income taxes. Ignore EPS disclosures. What is the income from discontinued operations?arrow_forwardOn December 31, 2021, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $9 million. The robotics business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $7 million. The income from operations of the segment during 2021 was $4 million. Pretax income from continuing operations for the year totaled $12 million. The income tax rate is 25%. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.arrow_forward
- Assuming on December 31,2019, a surplus of P 1,250,000 was presented in the statement of financial position of ABC Company, and on December 31,2020, there is an asset ceiling of P 1,000,000, how much is taken to other comprehensive income related to the effect of asset ceiling? actuarial loss --> positive amount actuarial gain --> negative amountarrow_forwardAn entity had the following events and transactions during 2020:- Depreciation for 2019 was understated by P500,000- A litigation settlement resulted in a loss of P2,000,000- The inventory on December 31, 2018 was overstated by P800,000- The entity disposed of a recreational division at a loss P1,500,000- The income tax rate is 30%What total amount of loss should be included in income from continuing operations for 2020? a. 2,000,000 c. 3,500,000 b. 1,400,000 d. 2,450,000 EXPLAIN THE ANSWER.arrow_forwardOn December 31, 2021, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $10 million. The semiconductor business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $8 million. The loss from operations of the segment during 2021 was $3.6 million. Pretax income from continuing operations for the year totaled $5.8 million. The income tax rate is 25%. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.arrow_forward
- MelSyd limited has determined its accounting profit before tax for the year ended 30 June 2021 to be $255,700. Included in this profit are the items of revenue and expense shown below Royalty revenue (non-taxable exempt ncome) $8000 Entertainment expense (non-deductible) $1700 Depreciation expense - plant 22500 Doubtful debt expense 4100 Annual leave expense 46000 Insurance expense 4200 Development expense 15000 The company's draft statement of financial position (Balance Sheet) with carrying amount (extract) and corresponding tax bases at 30 June 2021 showed the following assets and liabilities: Assets(extract) $ Carrying amount Tax base Cash 2500 2500 Account receivables 21500 Less Allowance for doubtful debt (4000) 17500 21500 Inventories 31600 31600 Prepaid insurance 4500 0 land 75000 75000 plant 150000 Less accumulated…arrow_forwardOn January 1, 2021, Concretti Inc. had a division that met the criteria for discontinuance of a business component. For the period January 1 through October 15, 2021, the component had revenue of P500,000 and expenses of P800,000. The assets of the component were sold on October 15, 2021 at a loss of P100,000. How should Concretti report the component's operation for 2021? A. 500,000 and 800,000 should be included in continuing operationsB. 400,000 should be reported as loss on discontinued operationsC. 400,000 should be reported as an extraordinary lossD. 300,000 should be reported as loss on discontinued operationsarrow_forwardOn January 1, 2021, the statement of financial position of X Incorporated shows total assets of 30 million, of which, one third accounts for current assets. On January 3, 2021, an equipment with a carrying value of 3 million was classified as held for sale. This equipment has a fair value less cost to sell of 2,000,000 on that date. On December 31, 2021, the equipment is still unsold but it still qualifies for recognition as held for sale. Depreciation expense for the year amounts to 1.2 million which includes the depreciation of 100,000 from the equipment which was classified as held for sale in January 3. The fair value less cost to sell of the equipment on December 31, 2021 was 2,100,000. On December 31, 2021, noncurrent assets would have a carrying value of: a. Answer not among the choices b. 15.9 million c. 18.8 million d. 16.8 million e. 14.9 millionarrow_forward
- Sister Company provided the following information for 2020: Current asset, Jan 1-P240,000; Property, Plant and Equipment, Jan 1-P1,600,000; Non-current liabilities-P580,000; Property, Plant and Equipment, Dec 31-P1,700,000; Current liabilities-P130,000. All assets are reported at year-end. Working capital of P90,000 remained unchanged. Net income for 2021was P60,000. No dividend was declared during the year and there were no other changes in the shareholders’ equity. How much is the amount of current assets on Dec. 31, 2020? How much is the shareholders’ equity on Dec. 31, 2020?arrow_forwardAAA Corporation, a retailer, has a gross sales of P1,400,000,000.00with a cost of sales of P60,000,000,00 and allowable deductions of150,000,000.00 for the calendar year 2021. Its total assets ofP180,000,000.00 as of December 31, 2021 per Audited FinancialStatements includes the land costing P50,000,000.00 and the building ofP25,000,000,00 in which the business entity is situated, with anaggregate amount of P75,000,000.00 as Fixed Assets. Assuming CY 2021is the 5th year of operation of AAA Corporation. REQUIRED: 1. how much is the taxable income? 2. how much is the tax payable?arrow_forwardIn its proposed 2020 income statement, Hrabik Corporation reports income before income taxes $ 505,000, income taxes $ 146,450 (not including unusual items), loss on operation of discontinued music division $ 58,000, gain on disposal of discontinued music division $ 40,000, and unrealized loss on available-for-sale securities $ 150,000. The income tax rate is 29%.Prepare a correct statement of comprehensive income, beginning with income before income taxesarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning