Intermediate Accounting - 9781260922783 - Exercice 3 - Quizlet

16/05/2024 21:27 Intermediate Accounting - 9781260922783 - Exercice 3 | Quizlet
Sciences sociales Économie Finance Intermediate Accounting (10th Edition)
Exercice 3
Chapitre 4, page 219
Intermediate Accounting
ISBN : 9781260922783
Table des matières
Solution Vérifié Réponse fournie il y a 2 ans
Étape 1 1 sur 19
In this exercise, we will prepare an income statement.
Étape 2 2 sur 19
The income statement presents the company's revenues, gains, expenses, and
losses.
https://quizlet.com/explanations/textbook-solutions/intermediate-accounting-10th-edition-9781260922783/chapter-4-problems-3-8803f534-3280-… 1/15
Étape 3 3 sur 19
Before we dig into the problem, let's identify the given data:
Related
Item
Information
Income from continuing operations before taxes $1,200,000
Plan to sell date May 2021
Date of sale November 2021
Income from operations of the discontinued

$160,000
component
Loss on sale of discontinued component $300,000
Selling price of the factory $1,200,000
Book value of the factory $1,100,000
Patent amortization expense (error) $120,000
Income tax rate 25%
This will be our guide for further computations.
Étape 4 4 sur 19
Let's start by preparing the income statement item per item.
First, the income from continuing operations before tax.
Olivo Corporation
Income Statement
For the Year Ended December 31, 2021
Income from continuing operations before tax $ 1, 200, 000

As given in the problem, the before-tax income from continuing operations is
$1,200,000.
Étape 5 5 sur 19
Now, we will start adjusting the before-tax income from continuing operations for
the considerations stated in the problem.
Étape 6 6 sur 19
As we can observe, items #2 and #3 are adjustments to the income from

continuing operations.
Let's start with item #2.
Since the factory sold is not considered as a component, we will compute the gain
or loss on the sale.
Selling price $ 1, 200, 000

Less: Book value
(1, 100, 000)
Gain on sale $ 100, 000
The computed gain on sale is presented as other income in the income statement.
Moreover, it increases the income from continuing operations.
Étape 7 7 sur 19
Consequently, we will present the gain on sale in our income statement.
Let's continue the presentation format in step 4 for a clearer view.
Olivo Corporation
Income Statement

Adjustments:
Add: Gain on sale 100, 000

The gain on sale of $100,000 increases the income from continuing operations.
Étape 8 8 sur 19
The next adjustment to the income is item #3: omitted amortization expense.
When there is an omitted material error, we need to restate the subsequent
financial statements to reflect the correction.
Étape 9 9 sur 19
Let's present the amortization expense adjustment in our income statement as
follows:
Let's continue the presentation format in step 7 for a clearer view.
Olivo Corporation
Income Statement

Adjustments:
Add: Gain on sale 100, 000
Less: Amortization expense (120, 000)
As presented, the amortization expense is $120,000.
Étape 10 10 sur 19
Finally, we can now determine the adjusted income from continuing operations as
follows:
Olivo Corporation
Income Statement
Income from continuing operations before tax $ 1, 200

Adjustments:
Add: Gain on sale 100
Less: Amortization expense (120,
Adjusted income from continuing operations before tax $ 1, 180
The adjusted income from continuing operations is $1,180,000.
 
Étape 11 11 sur 19
Consequently, we will determine the income tax effects on the adjusted income
from continuing operations.
Adjusted income from continuing operations $ 1, 180, 000

Multiply: Income tax rate
25%
Income tax expense $ 295, 000
The income tax expense for the period is $295,000.
Étape 12 12 sur 19
Let's present the adjusted income from continuing operations with income tax
effects.
Olivo Corporation
Income Statement

Adjustments:
Adjusted income from continuing operations before tax 1, 180

Less: Income tax expense (25%) $ (295,
As presented, the income tax expense to be charged is $295,000.
 
Étape 13 13 sur 19
Accordingly, we will determine the after-tax income from continuing operations.
Olivo Corporation
Income Statement

Adjustments:

Less: Income tax expense (25%) (295,

Income from continuing operations after tax $ 885
The income from continuing operations after tax is $885,000.
 
Étape 14 14 sur 19
Now, we will move to the discontinued operations segment.
Item #1 in the problem is considered as a separate component of the entity. Hence,
its sale on November 2021 will be accounted as discontinued operations.
Since the income from operations of the component and its loss on sale is given,
we can proceed in the computation of the total gain (loss) from operations of the
discontinued component.
Income from operations of discontinued segment $ 160, 000

Less: Loss on sale
(300, 000)
Loss from operations of discontinued component $ (140, 000)
The loss from operations of discontinued component is $140,000.
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Étape 15 15 sur 19
We will now present the discontinued operations items.
Olivo Corporation
Income Statement

Adjustments:

Discontinued operations:
Loss from operations of discontinued component
(including loss on sale of $300,000) $ (140,
As presented, the total loss from operations of the discontinued operations is

$140,000.
 
Étape 16 16 sur 19
Next, we will compute the income tax effects on the discontinued operations.
We will be using an income tax rate of 25%.
Loss from operations of discontinued component $ 140, 000

Multiply: Income tax rate
25%
Income tax benefit $ 35, 000
Since the operations of the discontinued operations resulted in a loss, it derived an

income tax benefit of $35,000.
Étape 17 17 sur 19
We can now continue the presentation in step 15 and reflect the income tax
effects.
Olivo Corporation
Income Statement
Income from continuing operations before tax $ 1, 200,

Adjustments:
Add: Gain on sale 100,
Less: Amortization expense (120, 0
Adjusted income from continuing operations before tax 1, 180,
Less: Income tax expense (25%) (295, 0
Income from continuing operations after tax $ 885,
(including loss on sale of $300,000) $ (140, 0
Add: Income tax benefit (25%) 35,
The income tax benefit for the period is $35,000.
 
Étape 18 18 sur 19
Consequently, we can now determine the loss from discontinued operations.
Olivo Corporation
Income Statement

Adjustments:

(including loss on sale of $300,000) $ (140,
Add: Income tax expense (25%) 35
Loss from discontinued operations $ (105,
The loss from discontinued operations is $105,000.
 
Étape 19 19 sur 19
Finally, we will present the net income for the period.
Olivo Corporation
Income Statement
Income from continuing operations before tax $ 1, 200,

Adjustments:
Add: Gain on sale 100,
Less: Amortization expense (120, 0
Adjusted income from continuing operations before tax 1, 180,
Less: Income tax expense (25%) (295, 0
Income from continuing operations after tax $ 885,

(including loss on sale of $300,000) $ (140, 0
Add: Income tax expense (25%) 35,
Loss from discontinued operations $ (105, 0
Net income $ (780, 0
The net income for the period is $780,000.
 
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16/05/2024 21:27 Intermediate Accounting - 9781260922783 - Exercice 3 | Quizlet

Sciences sociales Économie Finance Intermediate Accounting (10th Edition)

Solution Vérifié Réponse fournie il y a 2 ans

In this exercise, we will prepare an income statement.

Income from continuing operations before taxes $1,200,000

Plan to sell date May 2021

Date of sale November 2021

Income from operations of the discontinued

Loss on sale of discontinued component $300,000

Selling price of the factory $1,200,000

Book value of the factory $1,100,000

Patent amortization expense (error) $120,000

Income tax rate 25%

This will be our guide for further computations.

Let's start by preparing the income statement item per item.

First, the income from continuing operations before tax.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200, 000

As given in the problem, the before-tax income from continuing operations is

As we can observe, items #2 and #3 are adjustments to the income from

Let's start with item #2.

Selling price $ 1, 200, 000

Gain on sale $ 100, 000 ​

Moreover, it increases the income from continuing operations.

Consequently, we will present the gain on sale in our income statement.

Let's continue the presentation format in step 4 for a clearer view.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200, 000

When there is an omitted material error, we need to restate the subsequent

financial statements to reflect the correction.

Let's present the amortization expense adjustment in our income statement as

Let's continue the presentation format in step 7 for a clearer view.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200, 000

Less: Amortization expense (120, 000)

As presented, the amortization expense is $120,000.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200

Adjusted income from continuing operations before tax $ 1, 180

The adjusted income from continuing operations is $1,180,000.

Adjusted income from continuing operations $ 1, 180, 000

Income tax expense $ 295, 000 ​

The income tax expense for the period is $295,000.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200

Adjusted income from continuing operations before tax 1, 180

As presented, the income tax expense to be charged is $295,000.

Accordingly, we will determine the after-tax income from continuing operations.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200

Less: Income tax expense (25%) (295,

The income from continuing operations after tax is $885,000.

Now, we will move to the discontinued operations segment.

Item #1 in the problem is considered as a separate component of the entity. Hence,

its sale on November 2021 will be accounted as discontinued operations.

Income from operations of discontinued segment $ 160, 000

Loss from operations of discontinued component $ (140, 000) ​

The loss from operations of discontinued component is $140,000.

We will now present the discontinued operations items.

For the Year Ended December 31, 2021

Income from continuing operations before tax $ 1, 200

As presented, the total loss from operations of the discontinued operations is

We will be using an income tax rate of 25%.

Gain on sale $ 100, 000

Income tax expense $ 295, 000

Loss from operations of discontinued component $ (140, 000)

Income tax benefit $ 35, 000