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Q6P_(b)

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Intermediate Accounting (Kieso)
Found in: Page 189

Short Answer

Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.

Retained earnings, January 1, 2017 $257,600

Add:

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

430,300

Deduct:

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

Instructions

(b) State where the items that do not appear in the corrected retained earnings statement should be shown

All the items should be reported in the income statement according to their nature and their section, such as usual or unusual items, extraordinary items, continuing operations, and many more

See the step by step solution

Step by Step Solution

Step 1: Components of the Income Statement

An income statement comprises expenses and revenues that lead to the computation of profits or losses. In addition, various expenses, gains, losses, and revenues are further bifurcated into different categories, such as continuing and discontinued operations.

Step 2: Reporting of items

  • The gain on sale of investments should not be included in the usual activities of the business but reported under the extraordinary items.

  • Refund on litigation with the government should be reported in the income statement’s unusual items.

  • Under the unusual items section, writing off goodwill must be reported in the income statement.

  • Loss on discontinued operations should be reported in the income statement separately from continuing operations.

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