For each of the items listed below, indicate how it should be treated in the fin
ID: 2516762 • Letter: F
Question
For each of the items listed below, indicate how it should be treated in the financial statements. Use the following letter code for your selections:
a) Ordinary item on the income statement
b) Discontinued operations
c) Unusual item on the income statement
d) Adjustment to prior year’s retained earnings
_____ 1. The bad debt rate was increased from 1% to 2% of sales, thus increasing bad debt expense.
_____ 2. Obsolete inventory was written off. This was a material amount, and the first loss of this type in the company's history.
_____ 3. An uninsured earthquake loss was incurred. This was the first loss of this type in the company's history.
_____ 4. Recognition of revenue earned last year, inadvertently omitted from last year's income statement.
_____ 5. The company sold one of its warehouses at a loss.
_____6. Settlement of a court case involving the federal government, related to income taxes of three years ago. The company is continually involved in various adjustments with the federal government related to its taxes.
_____ 7. A loss incurred from expropriation – the company owned resources in South America which were taken over by a dictator unsympathetic to Canadian business interests.
_____ 8. The company failed to record depreciation in the previous year.
_____ 9. Discontinuance of all production in Canada. The manufacturing operations were relocated to Honduras.
_____ 10. Loss on sale of investments. The company last sold some of its investments two years ago.
_____11. Loss on the disposal of a segment of the business.
Explanation / Answer
1 Increasing of bad debt is normal nature, treated under (a)
2 Obselete inventory is unusual item on income statement because this typr of written off not generally happened, treated under (c)
3 Earthquake loss is unusual item on income statement because this typr of written off not generally happened, treated under (c)
4 if any income/loss missed in previous year then it'll be treated in current year under prior period, (d)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.