I-15.01 Problem

I-15.01 Problem - The company's income tax rate is 30%....

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I-15.01 Stearns Corporation was a diversified company with two separate lines of business - chemicals and financial services. At the beginning of 20X7, Strearns sold its financial services unit, resulting in a $3,000,000 pretax gain. The following additional transactions and events pertain to 20X7: The chemical unit sold a paint factory at pretax loss of $500,000. This asset sale did not represent the sale of a business unit. The company incurred a $700,000 clean-up cost (pretax) associated with an accidental release of potentially hazardous chemicals. The company has very strong controls to prevent such events, and this occurred only because of a series of nonrecurring and unusual system failures. The loss is judged to be extraordinary. General information for 20X7 is as follows: Sales, $7,500,000; Cost of Goods Sold, $3,200,000; Selling Expenses, $1,000,000; and General & Administrative Expenses, $1,500,000.
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Unformatted text preview: The company's income tax rate is 30%. Stearns changed its method of accounting for inventory at the beginning of 20X7. The cost of goods sold of $3,200,000 is based on the new method. Cumulatively, prior years' income would have been $2,400,000 higher (net of tax effects) had the new method been in use all along. The company discovered an error in a prior year's report. The error resulted in a $420,000 overstatement of 20X5 net income. (a) Prepare the 20X7 income statement for Stearns Corporation. (b) Retained earnings at January 1, 20X7, was $5,500,000, before giving consideration to the correction of error or accounting change described above. What is the balance of the revised beginning retained earnings? (c) The company had $400,000 of other comprehensive income (net of any tax effects) related to holding gains on available for sale securities. How much is total "comprehensive income?"...
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This note was uploaded on 02/29/2012 for the course ACCOUNTING 101 taught by Professor Hudack during the Spring '11 term at FIU.

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