Compiled list of problems Income Statement[1].docx

Compiled list of problems Income Statement[1].docx - Income...

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Income Statement and Related Issues Problem Module Case #1: Classifying Items on a Multistep Income Statement Denote where each of the following items would appear on the income statement and whether it is disclosed pre-tax (PT) or net of tax (NT). Classify each by indicating OE (Operating expenses), NO (Non-operating item), BL (below-the-line). Classification Pre-tax or Net of Tax Depreciation Expense Loss on sale of discontinued operations Interest Expense Wage Expense Bad Debt Expense Gain on sale of fixed asset Utilities Expense Rent Expense Impairment of Goodwill Impairment of Discontinued Operation Loss due to flood damage Profit on discontinued operations Amortization Expense Case #2: Discontinued Operations Disclosure During 2016, MIA Company had net income of $275,000 (net income is after tax). Included in that income was a $25,000 after tax operating loss resulting from a component the company decided to sell during the year. The component met the qualifications of a discontinued component in 2016, but was not expected to be sold until January, 2017. On December 31, 2016, the book value of the component was $550,000. MIA estimates the fair value to be $430,000 and the cost to sell $25,000. MIA has a tax rate of 40%. 1. Provide the discontinued operations disclosure for MIA as it would appear on the 2016 income statement beginning with income from continuing operations after tax. 2. MIA Company sold the component at the end of January 2017. The component had an operating loss of $25,000 in 2017. Assume this loss is pre-tax. The company received $470,000 from the sale of the component on January 31, 2017. MIA’s tax rate remained at 40% through 2017. Prepare the company’s discontinued operations portion of their 2017 Income Statement. Case #3: Discontinued Operations Disclosure Prop n’ Lock decided during the fiscal year 2016 to discontinue a portion of its operations. The company determined that this discontinuation represented a strategic shift in its operations and its cash flows were able to be separated from the continuing operations of the company. Information regarding the discontinued operations at 2016 were disclosed as follows: Book Value of Assets 12/31/16 $2,375,000 Fair Value of Asset 12/31/16 1,785,000 Book Value of Liabilities 12/31/16 1,950,000 Fair Value of Liabilities 12/31/16 1,482,000 Revenue 1,325,000 Expenses 1,135,000 Costs to Dispose 25,000 A. Assuming that Prop n’ Lock had after tax income from continuing operations of $1,745,000, prepare the company’s disclosure of discontinued operations beginning with after tax income from continuing operations and ending with net income. Assume a 40% tax rate.
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B. Suppose that Prop n’ Lock sold the discontinued division in March of 2017 for $475,000. What would be the gain or loss on disposal? Assume a 40% tax rate. Case #4: Multistep Income Statement Classification Below is the 2017 Income Statement for Green World Corp. an environmental engineering services firm.
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