Irregular transactions such as discontinued

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Irregular transactions such as discontinued operations and extraordinary items should be reported separately in a. both a single-step and multiple-step income statement.b. a single-step income statement only.c. a multiple-step income statement only.d. neither a single-step nor a multiple-step income statement.
ReviewReporting Irregular Items
4-31Material items that are unusualor infrequent, but not both, should be reported in a separate section just above “Income from continuing operations before income taxes.”Examples can include:uWrite-downs of inventoriesuForeign exchange transaction gains and lossesThe Board prohibits net-of-tax treatment for these items.Reporting Irregular ItemsUnusual Gains and Losses
4-32Reporting Irregular ItemsIllustration 4-9Income Statement Presentation of Unusual ChargesUnusual Gains and Losses
4-33uRetrospectiveadjustment (recast PY statements using new principle).uCumulative effect adjustment to beginning retained earnings (on earliest year presented).uApproach preserves comparability.uExamples include:change from FIFO to average cost.change from the percentage-of-completion to the completed-contract method.Reporting Irregular ItemsChanges in Accounting Principles
4-34Reporting Irregular ItemsChange in Accounting Principle:Gaubert Inc. decided in March 2012 to change from FIFO to weighted-average inventory pricing. Gaubert’s income before taxes, using the new weighted-average method in 2012, is $30,000. Illustration 4-10Calculation of a Change inAccounting PrincipleIllustration 4-11Income StatementPresentation of a Changein Accounting Principle (Based on 30% tax rate)Pretax Income Data
4-35uAccounted for in the period of changeand future periods.uNot handled retrospectively.uNot considered errors or extraordinary items.uExamplesinclude:Useful lives and salvage values of depreciable assets.Allowance for uncollectible receivables.Inventory obsolescence.Reporting Irregular ItemsLO 4 Explain how to report irregular items.Changes in Estimate
4-36Change in Estimate:Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2012 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.Questions:lWhat is the journal entry to correct the prior years’ depreciation?lCalculate the depreciation expense for 2012.Change in Estimate Example
4-37Equipment$510,000Fixed Assets:Accumulated depreciation350,000Net book value (NBV)$160,000Balance Sheet(Dec. 31, 2011)Change in Estimate ExampleAfter 7 yearsEquipment cost $510,000Salvage value- 10,000Depreciable base500,000Useful life (original)10 yearsAnnual depreciation$ 50,000x 7 years = $350,000 First, establish NBV at date of change in estimate.
4-38Change in Estimate ExampleNet book value $160,000Salvage value (new) 5,000Depreciable base155,000Useful life remaining8 yearsAnnual depreciation$ 19,375Depreciation Expense calculation for 2012.

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