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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Misclassiflcations Rox Corporation’s multiple-step income statement and retained earnings statement for the year ended December 31, 2019, as developed by its bookkeeper, are shown here:

Chapter 5, Problem 5P, Misclassiflcations Rox Corporations multiple-step income statement and retained earnings statement

You determine that the account balances listed on the statements are correct but are incorrectly classified in certain cases. The company laces a 30% tax rate. No shares of common stock were issued or retired during 2019.

Required:

  1. 1. Review both statements and indicate where each incorrectly classified item should be classified.
  2. 2. Prepare a correct multiple-step income statement for 2019.
  3. 3. Determine the correct beginning balance in retained earnings, and then prepare a correct 2019 retained earnings statement.

1.

To determine

Indicate the place where incorrectly classified item should be classified.

Explanation

Income statement:

  • The title of the statement should be named as “Income Statement” not “Revenue Statement”.
  • The result of income statement reveals “for a period of time” not “a point in time”. The correct heading is “For the Year Ended December 31, 2019”.
  • Income from operation of discontinued Division P should be reported separately in the “result from discontinued operation”.
  • In the statement of retained earnings, the dividend declared should be deducted.
  • Under the head operating expense, selling expenses should be reported.
  • Under the head other item, interest expense would be reported.
  • Loss on sale of Division P would be reported under the part of “result from discontinued operation”.
  • To calculate gross profit, cost of goods sold must be subtracted from revenues (net).
  • Income tax expense would not come under operating expenses. It will appear on the other item section...

2.

To determine

Prepare a correct multi-step income statement for the year ended December 31, 2019.

3.

To determine

Calculate the correct balance in retained earnings and prepare a correct retained earnings statement for the year ended December 31, 2019.

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