Income from Continuing Operations Income from continuing operations and retained earningsThe accountant preparing the income statement for SMC had some doubts about the appropriateaccounting treatment of the six items listed below during the fiscal year ending December 31,2023. Some of the six items have already been recorded in income from continuing operationswhile others have not yet been recorded. If needed, assume a tax rate of 40 percent.Required: for each of the six items, decided whether A) the item needs to be adjusted in Incomefrom Continuing Operations, B) the item needs to be reported below Income from ContinuingOperations, or C) reported on the Statement of Retained Earnings.1.Office equipment purchased January 1, 2023, for $60,000 was incorrectly charged toSupplies Expense at the time of purchase. The office equipment has an estimated three-yearservice life with no expected salvage value. SMC uses the straight-line method to depreciateoffice equipment for financial reporting purposes. This error has not been corrected.The corporation disposed of its sporting goods division during 2023. This disposal isconsidered a major shift in strategy. The division correctly calculated income from operating thisdivision of $110,000 before taxes and a loss of $20,000 before taxes on the disposal of thedivision. All these events occurred in 2023 and were included in income from continuingoperations before taxes.2.4.5.The company recorded advances of $10,000 to employees made December 31, 2023 asSalaries and Wages Expense.Dividends of $10,000 during 2023 were recorded as an operating expense.In 2023, SMC changed its method of accounting for inventory from the first-in-first-outmethod to the average cost method. Inventory in 2023 was correctly recorded using the averagecost method. The new inventory method would have resulted in an additional $125,000 of costof goods sold (before taxes) being reported on prior years' income statement.6.On January 1, 2019, SMC bought a building that cost $85,000, had an estimated useful lifeof ten years, and had a salvage value of $5,000. SMC uses the straight-line depreciation methodto depreciate the building. In 2023, it was estimated that the remaining useful life was eightyears, and the salvage value was zero. Depreciation expense reported on the 2023 incomestatement was correctly calculated based on the new estimates. No adjustment for prior years'depreciation estimates was made.Required: For each of the six items, you will either adjust Income from Continuing Operations (if itneeds adjusting), determine whether the amount is reported below Income fromcontinuing operations, or is reported on the Statement of Retained Earnings.If there is no adjustment, do not enter any numbers. There are more cells provided than needed.For Pull-down Menus (do not change)Office equipment ratherthan supply expenseDisposal of sporting goodsdivisionAdvances classified asexpenseDividends treated asexpenseChange in inventoryChange in estimateIncome StatementIncome from continuing operations (beforetaxes) (as originally reported)Income from continuing operations (before tax)Tax expense (40%)Income from continuing operationsNet IncomeRetained Earnings StatementBeginning balance (as originally reported)Adjustments to beginning balance:Adjusted Beginning balance+ Net incomeEnding balance Retained EarningsFor the YearEnding 202380,00080,00032,00048,00048,000125,000125,00048,000173,000

An income statement stands for the statement that shows profits and loss of the firm, its revenue…

The accountant preparing the income statement for SMC had some doubts about the appropriate accounting treatment of the six items listed below during the fiscal year ending December 31, 2023. Some of the six items have already been recorded in income from continuing operations while others have not yet been recorded. If needed, assume a tax rate of 40 percent. Required: for each of the six items, decided whether A) the item needs to be adjusted in Income from Continuing Operations, B) the item needs to be reported below Income from Continuing Operations, or C) reported on the Statement of Retained Earnings. Office equipment purchased January 1, 2023, for $60,000 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. SMC uses the straight-line method to depreciate office equipment for financial reporting purposes. This error has not been corrected. 2. 1. The corporation disposed of its sporting goods division during 2023. This disposal is considered a major shift in strategy. The division correctly calculated income from operating this division of $110,000 before taxes and a loss of $20,000 before taxes on the disposal of the division. All these events occurred in 2023 and were included in income from continuing operations before taxes.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q