EFG, an accrual basis calendar year corporation, reported $742,000 net income before tax on its financial statements prepared in accordance with GAAP. EFG’s records reveal the following information: The allowance for bad debts as of January 1 was $79,000. Write-offs for the year totaled $14,800, and the addition to the allowance for the year was $12,800. The allowance as of December 31 was $77,000.EFG paid a $25,970 fine to the state of Delaware for a violation of state pollution control laws.EFG was sued by a consumers' group for engaging in false advertising practices. Although EFG’s lawyers are convinced that the suit is frivolous, its independent auditors insisted on establishing a $74,200 allowance for contingent legal liability and reporting a $74,200 accrued expense on the income statement.EFG received a $244,860 advanced payment for 10,000 units of inventory on October 20. EFG reported the payment as revenue the following February when the units were shipped.

Tax is a liability that is calculated on the income earned and reported in the income statement.

Answered: EFG, an accrual basis calendar year…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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EFG, an accrual basis calendar year corporation, reported $742,000 net income before tax on its financial statements prepared in accordance with GAAP. EFG’s records reveal the following information:

The allowance for bad debts as of January 1 was $79,000. Write-offs for the year totaled $14,800, and the addition to the allowance for the year was $12,800. The allowance as of December 31 was $77,000.
EFG paid a $25,970 fine to the state of Delaware for a violation of state pollution control laws.
EFG was sued by a consumers' group for engaging in false advertising practices. Although EFG’s lawyers are convinced that the suit is frivolous, its independent auditors insisted on establishing a $74,200 allowance for contingent legal liability and reporting a $74,200 accrued expense on the income statement.
EFG received a $244,860 advanced payment for 10,000 units of inventory on October 20. EFG reported the payment as revenue the following February when the units were shipped.

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