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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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Income Statement Deficiencies David Company’s income statements are presented here:

Chapter 5, Problem 6E, Income Statement Deficiencies David Companys income statements are presented here: Additional facts

Additional facts are as follows:

  1. a. The loss from operations of the discontinued Drexler Division (a strategic component of the company) from January 1, 2020 to September 30, 2020 (the portion of the year prior to the date of sale), and from January 1, 2019 to December 31, 2019, is included in David's income statements for the year ended December 31, 2020 and December 31, 2019, respectively, in “other, net.”
  2. b. David has a simple capital structure with only common stock outstanding, and the net income per share of common stock was based on the weighted average number of common shares outstanding during each year.
  3. c. David’s common stock is listed on the New- York Stock Exchange and closed at $13 per share on December 31,2020, and $15 per share on December 31, 2019.

Required:

Next Level Determine from the additional facts listed whether the presentation of those facts in David’s income statements is appropriate. If the presentation is appropriate, discuss the rationale for the presentation. If the pre presentation is not appropriate, specify appropriate presentation and discuss its rationale. Do not discuss disclosure requirements for the notes to the financial statements.

To determine

Identify that the presentation of facts in Company D’s income statement is appropriate or not. If not specify the appropriate presentation and discuss the same.

Explanation

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Identify that the presentation of facts in Company D’s income statement is appropriate or not. If not specify the appropriate presentation and discuss the same:

In the given income statement, the loss from the discontinued operations from January 1, 2020 to September 31, 2020 and from January 1, 2019 to December 31, 2019 are included in the “Other, net”. This should be presented in the section of discontinuing operations not in the continuing operations section.

Appropriate presentation of Company D’s income statement:

  • “Other, net” and “total costs and expenses” should be decreased by excluding the loss from the discontinued operations.
  • By the above adjustment, “Income from continuing operations” will increase...

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