3. The following income statement items appeared on the adjusted trial balance o

Question

3. The following income statement items appeared on the adjusted trial balance of Foxworthy Corporation for the year ended December 31, 2013 ($ in 000s): sales revenue, $22,300; cost of goods sold, $14,500; selling expenses, $2,300; general and administrative expenses, $1,200; dividend revenue from investments, $200; interest expense, $300. Income taxes have not yet been accrued. The company's income tax rate is 40% on all items of income or loss. These revenue and expense items appear in the company's income statement every year. The company's controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2013 ($ in 000s). All transactions are material in amount.

1. Investments were sold during the year at a loss of $300. Foxworthy also had unrealized losses of $200 for the year on investments.
2. One of the company's factories was closed during the year. Restructuring costs incurred were $2,000.
3. One of Foxworthy's manufacturing facilities located in a foreign country was expropriated. A loss of $800 was recognized. The event is considered to be unusual and infrequent.
4. During the year, Foxworthy completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP regarding discontinued operations. The division had incurred operating income of $800 in 2013 prior to the sale, and its assets were sold at a loss of $1,800.

Foreign currency translation gains for the year totaled $600.

Prepare Foxworthy's single, continuous statement of comprehensive income for 2013, including basic earnings per share disclosures. Two million shares of common stock were outstanding throughout the year.

Explanation / Answer

Answer:

The depreciation expense error is a prior period adjustment (to retained earnings) and is not reported in the income statement.

Foxworthy Manufacturing Corporation Combined Statement of Income & Comprehensive Income For the Year Ended December 31, 2013 Sales Revenue $22,300 Cost of Goods Sold $14,500 Gross Profit $7,800 Operating Expenses: Selling $2,300 Genaral & Administrative $1,200 Restructuring Costs $2,000 Total Operating Expenses $5,500 Operating Income $2,300 Other Income (Expense): Loss on Sale of Investments ($300) Interest Expense ($300) Dividend Revenue $200 Other Income (Expense) ($400) Income from Continuing Operations before Income Taxes & Extraordinary Items $1,900 Income Tax Expense ($760) Income from Continuing Operations before Extraordinary Items $1,140 Discontinued Operations: Income from operations of Discontinued Component (including loss on disposal of $1,800) ($1,000) Income Tax Benefit $400 Loss from Discontinued Operations ($600) Income before Extraordinary Item $540 Extraordinary Item: Loss from Expropriation (Net of $320 tax benefit) ($480) Net Income $60 Other Comprehensive Income: Unrealized Loss from Investments (Net of $80 Tax) ($120) Gain from foreign currency Translation (Net of $240 Tax) $360 $240 Comprehensive Income $300 Basic Earnings per Share: Income from Continuing Operations before Extraordinary Item $0.57 Discontinued operations ($0.30) Extraordinary loss ($0) Net Income $0.03

The depreciation expense error is a prior period adjustment (to retained earnings) and is not reported in the income statement.

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