Infrequent Items) Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2020. (000 omitted) Net sales revenue $640,000 Costs and expenses Cost of goods sold $500,000 Selling, general, and administrative expenses 66,000 Other, net 17,000 583,000 Income before income tax 57,000 Income tax 19,400 Net income 37,600 Retained earnings at beginning of period, as previously reported 141,000 Adjustment required for correction of error (7,000) Retained earnings at beginning of period, as restated 134,000 Dividends on common stock (12,200) Retained earnings at end of period $159,400 Additional facts are as follows. 1. “Selling, general, and administrative expenses” for 2020 included a charge of $8,500,000 that was usual but infrequently occurring. 2. “Other, net” for 2020 included a loss on sale of equipment of $6,000,000. 3. “Adjustment required for correction of an error” was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made). 4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements. Instructions Determine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)

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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P4.5 (LO 2, 3, 4, 5) (Unusual or Infrequent Items) Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2020.

		(000 omitted)
Net sales revenue		$640,000
Costs and expenses
Cost of goods sold	$500,000
Selling, general, and administrative expenses	66,000
Other, net	17,000	583,000
Income before income tax		57,000
Income tax		19,400
Net income		37,600
Retained earnings at beginning of period, as previously reported	141,000
Adjustment required for correction of error	(7,000)
Retained earnings at beginning of period, as restated		134,000
Dividends on common stock		(12,200)
Retained earnings at end of period		$159,400

Additional facts are as follows.

1. “Selling, general, and administrative expenses” for 2020 included a charge of $8,500,000 that was usual but infrequently occurring.

2. “Other, net” for 2020 included a loss on sale of equipment of $6,000,000.

3. “Adjustment required for correction of an error” was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made).

4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements.

Instructions

Determine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)

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