When does tax allocation within a period become necessary? How should this allocation be handled?
Tax allocation within a period is helpful to provide the accurate results of specific transactions showing a net of all effects.
Tax allocation identifies differences between accounting for tax purposes and business purposes.
When a firm has discontinued operations, extraordinary items, and correction of errors, tax allocation within a period (intra period) become necessary.
This allocation is essential to establish a relationship between income tax expense and continuing operations, discontinued operations, extraordinary items, and income before extraordinary items. It helps in presenting the financial reports more clearly and factually.
Question: At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.
10% cumulative preferred stock, $100 par, 107,500 shares $10,750,000
Common stock, $5 par, 4,000,000 shares 20,000,000
During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.
Income from continuing operations before taxes $23,650,000
Discontinued operations (loss before taxes) $3,225,000
Preferred dividends declared $1,075,000
Common dividends declared $2,200,000
Effective tax rate 35%
Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)
Which of the following statements is correct regarding income reporting under IFRS?
(a) IFRS does not permit revaluation of property, plant, equipment, and intangible assets.
(b) IFRS provides the same options for reporting comprehensive income as GAAP.
(c) Companies must classify expenses by nature.
(d) IFRS provides a definition for all items presented in the income statement.
Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.
Retained earnings, January 1, 2017 $257,600
Gain on sale of investments (net of tax) $41,200
Net income 84,500
Refund on litigation with government, related to
the year 2014 (net of tax) 21,600
Recognition of income earned in 2016, but omitted
from income statement in that year (net of tax) 25,400 172,700
Loss on discontinued operations (net of tax) 35,000
Write-off of goodwill (net of tax) 60,000
Cumulative effect on income of prior years in changing
from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200
Cash dividends declared 32,000 150,200
Retained earnings, December 31, 2017 $280,100
Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income.
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