a.
State the reason behind the difference between the modified amount for total assets of Year 8 and originally reported amount.
b.
State the reason behind the similarity between the restated net income amounts for Year 8 and originally reported amount, when nearly all of the individual revenues and expenses showed a decrease on restatement.
c.
State the reason behind the difference between the modified amount of cash flow from operations for Year 8 and originally reported amount.
d.
Identify the columns and amounts in Exhibit 6.23 to analyze the changes in the structure of assets and equities between year 8 and year 9.
e.
Identify the columns and amounts in Exhibit 6.24 to analyze the changes in the operating profitability between year 8 and year 9.
f.
Identify the columns and amounts in Exhibit 6.25 to assess the short-term liquidity and long-term solvency risk with the use of cash flow ratios.
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
- Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $800,000. The book value of the division’s assets was $1,410,000, resulting in a before-tax loss of $610,000 on the sale.The division incurred a before-tax operating loss from operations of $260,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance’s after-tax income from its continuing operations is $750,000. Required:Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year. (Amounts to be…arrow_forwardLion Company is a diversified entity with nationwide interests in commercial real estate development, banking, mining and food distribution. The food distribution division was deemed to be inconsistent with the long-term direction of the entity. On October 1,2020 the board of directors voted to approve the disposal of this division. The sale is expected to occur in August 2021. The food distribution had revenue of P15,000,000 and expenses of P10,000,000for the period October 1 to December 31.The carrying amount of the division’s net assets on December 31, 2020 was P55,000,000 and the fair value less cost of disposal was P60,000,000.The sale contract required Lion to terminate certain employees incurring an expected termination cost of P4,000,000 to be paid by December 15, 2021. The income tax rate is 30%. REQUIREMENT: 1. What amount should be reported as income from discontinued operation for 2020? 2. What amount of expected gain is not recognized?arrow_forwardChance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $600,000. The book value of the division’s assets was $1,000,000, resulting in a before-tax loss of $400,000 on the sale. The division incurred a before-tax operating loss from operations of $120,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance’s after-tax income from its continuing operations is $550,000.Required:Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year.arrow_forward
- The semiconductor business of the California Microtech Corporation qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $19 million. The loss from operations of the segment during 2021 was $3.3 million. Pretax income from continuing operations for the year totaled $6.1 million. The income tax rate is 25%. Assume that the semiconductor segment was not sold during 2021 but was held for sale at year-end. The estimated fair value of the segment’s assets, less costs to sell, on December 31 was $20 million. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted and negative amounts should be indicated with a minus sign. Enter your answers in whole dollars and not in millions.)arrow_forwardXYZ Company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledged its responsibility for the contamination. An initial clean up feasibility study has shown that it will cost at least P500,000 to clean up the toxic waste. During the current year, the entity has been sued for patent infringement and lost the case. A preliminary judgment of P300,000 was issued and is under appeal. The entity’s attorney agrees that it is probable that the entity will lose this appeal. What amount of provision should be accrued as liability? a. 0 b. 800,000 c. 500,000 d. 300,000arrow_forwardUnder IFRS 15, assuming the outcome of construction can be estimated reliably, what is the realized gross loss to be recognized by MDC for the year ended December 31, 20x22? On July 1, 20x31, Torela Company, a construction company, entered into a contract to construct a commercial building for a customer on customer-owned land for promised consideration of P1,000,000 and a bonus of P200,000 if the building is completed within 24 months. An inception date, the entity expects total construction costs of P700,000 to complete the building. The entity accounts for the promised bundle of goods and services as a single performance obligation satisfied over time in accordance with paragraph IFRS 15 because the customer controls the building during construction. At contract inception, the entity cannot conclude that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur with respect to inclusion of bonus to contract price. Completion…arrow_forward
- Sozoka Corporation has two business segments, Segment A and Segment B. Segment A’s business operation is continuing. Segment B met the criteria to be classified as “held for sale”. The board of directors was able to dispose this segment (B) on September 1, 2021. Net proceeds from the sale were P20,000,000; while the segments’ carrying amount on September 1, 2021 was P18,000,000. The following pertains to the results of the operations of Segment A & B during 2021: Segment A January 1 – December 31, 2021 Segment B January 1 – December 31, 2021 Revenue 25,000,000 2,000,000 Selling and general expenses 15,000,000 15,000,000 Income tax 35% (USE NEGATIVE SIGN FOR LOSSES) How much shall be presented as Discontinued operations on the face of the income statement? How much shall be presented as profit/loss on the face of the income statement?arrow_forward. Sunny Inc. had the following transactions related to intangibles during the year: • On January 1, 2022, Sunny signed an agreement to operate as a franchisee of Dairy King, Inc. for an initial franchise fee of $150,000. The agreement provides that the fee is not refundable. Sunny estimates the useful life of the franchise to be 15 years. • A trade name was purchased from Cloudy Company for $90,000 on January 1, 2020. Expenditures for successful litigation in defense of the trade name totaling $18,000 were paid on January 1, 2022. Sunny estimates that the trade name will have an indefinite life. After all necessary adjusting entries have been made, what is the total book value of the intangible assets on the December 31, 2022, balance sheet? A) $108,000 B) $140,000 C) $248,000 D) $258,000 E) None of the abovearrow_forwardHOME Ltd. is a Canadian-controlled private corporation operating a small land-development business. In the start of 2020, the company acquired a license to manufacture pre-fab homes and began operations immediately. Financial information for the 2020 taxation year is outlined below: 1. HOME 's profit before income taxes for the year ended November 30, 2020, was $245,000, as follows: Income from land development and pre-fab home manufacturing $248,000 Loss of sale of properties (3,000) $245,000 The loss on sale of property resulted from two transactions. On October 1, 2020, HOME sold all of its shares of Q Ltd., a 100% subsidiary, for $100,000. (The shares were acquired seven years ago for $80,000). Also, during the year, HOME sold some of its vehicles (class 10) for $25,000. The vehicles originally cost $50,000 and had a book value of $48,000 at the time of sale. New vehicles were obtained under a lease arrangement. (NOTE: capital gains are only 50% taxable). 2. The 2019 corporate tax…arrow_forward
- During the current year, Black Corporation incurred the following expenditures which should berecorded either as operating expenses or as intangible assets:a. Expenditures were made for the training of new employees. The average employee remainswith the company for five years, but is trained for a new position every two years.b. Black purchased a controlling interest in a vinyl flooring company. The expenditure resultedin the recording of a significant amount of goodwill. Black expects to earn above-averagereturns on this investment indefinitely.c. Black incurred large amounts of research and development costs in developing a dirt-resistantcarpet fiber. The company expects that the fiber will be patented and that sales of the resultingproducts will contribute to revenue for at least 25 years. The legal life of the patent, however,will be only 20 years.d. Black made an expenditure to acquire the patent on a popular carpet cleaner. The patent had aremaining legal life of 14 years, but…arrow_forwardDalmatian Corp. follows IFRS and had the following transactions during its year ended December 31: Spent $135,000 developing its brand. Incurred development costs of $254,000 for a new product that met all the intangible asset recognition criteria on September 30 of that same year. Of the $254,000 spent, $160,000 was incurred after September 30. Purchased a customer list for $89,000 from a competitor that was closing its business. What is the total cost of intangible assets that were capitalized during 2020?arrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
- Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage