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Question: As audit partner for Grupo and Rijo,

As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year. The following material items have come to your attention.
1. A merchandising company incorrectly overstated its ending inventory 2 years ago. Inventory for all other periods is correctly computed.
2. An automobile dealer sells for $137,000 an extremely rare 1930 S type Invicta which it purchased for $21,000 10 years ago. The Invicta is the only such display item the dealer owns.
3. A drilling company during the current year extended the estimated useful life of certain drilling equipment from 9 to 15 years. As a result, depreciation for the current year was materially lowered.
4. A retail outlet changed its computation for bad debt expense from 1% to ½ of 1% of sales because of changes in its customer clientele.
5. A mining concern sells a foreign subsidiary engaged in uranium mining, although it (the seller) continues to engage in uranium mining in other countries.
6. A steel company changes from the average-cost method to the FIFO method for inventory costing purposes.
7. A construction company, at great expense, prepared a major proposal for a government loan. The loan is not approved.
8. A water pump manufacturer has had large losses resulting from a strike by its employees early in the year.
9. depreciation for a prior period was incorrectly understated by $950,000. The error was discovered in the current year.
10. A large sheep rancher suffered a major loss because the state required that all sheep in the state be killed to halt the spread of a rare disease. Such a situation has not occurred in the state for 20 years.
11. A food distributor that sells wholesale to supermarket chains and to fast-food restaurants (two distinguishable classes of customers) decides to discontinue the division that sells to one of the two classes of customers.
From the foregoing information, indicate in what section of the income statement or retained earnings statement these items should be classified. Provide a brief rationale for your position.

> The inventory of 3T Company on December 31, 2014, consists of the following items. Instructions (a) Determine the inventory as of December 31, 2014, by the lower-of-cost-or-market method, applying this method directly to each item.(b) Determine the in

> Use the information for Boyne Inc. from BE9-8, and assume the price level increased from 100 at the beginning of the year to 115 at year-end. Compute ending inventory at cost using the dollar-value LIFO retail method. In BE9-8 Boyne Inc. had beginning in

> Why are inventories valued at the lower-of-cost-or market? What are the arguments against the use of the LCM method of valuing inventories?

> Use the information for Boyne Inc. from BE9-8. Compute ending inventory at cost using the LIFO retail method. In BE9-8 Boyne Inc. had beginning inventory of $12,000 at cost and $20,000 at retail. Net purchases were $120,000 at cost and $170,000 at retail

> In its 2012 annual report, Gap Inc. reported inventory of $1,615 million on January 25, 2012, and $1,620 million on January 29, 2011, cost of sales of $9,275 million for fiscal year 2012, and net sales of $14,549 million. Compute Gap’s inventory tu

> Boyne Inc. had beginning inventory of $12,000 at cost and $20,000 at retail. Net purchases were $120,000 at cost and $170,000 at retail. Net markups were $10,000; net markdowns were $7,000; and sales revenue was $147,000. Compute ending inventory at cost

> Fosbre Corporation’s April 30 inventory was destroyed by fire. January 1 inventory was $150,000, and purchases for January through April totaled $500,000. Sales revenue for the same period were $700,000. Fosbre’s normal gross profit percentag

> Use the information for Kemper Company from BE9-5. In 2015, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase. In BE9-5 Kemper Company signed a long-term noncancelable purchase commitme

> Kemper Company signed a long-term non-cancelable purchase commitment with a major supplier to purchase raw materials in 2015 at a cost of $1,000,000. At December 31, 2014, the raw materials to be purchased have a market value of $950,000. Prepare any nec

> Bell, Inc. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is $8,000. Bell will group the CDs into three price categories for resale, as indicated below. Determine the cost per CD for ea

> Kumar Inc. uses a perpetual inventory system. At January 1, 2014, inventory was $214,000 at both cost and market value. At December 31, 2014, the inventory was $286,000 at cost and $265,000 at market value. Prepare the necessary December 31 entry under

> Floyd Corporation has the following four items in its ending inventory. Determine the final lower-of-cost-or-market inventory value for each item.

> Presented below is information related to Rembrandt Inc.’s inventory. Determine the following:(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis,(b) The co

> Explain the rationale for the ceiling and floor in the lower of cost or market method of valuing inventories.

> Of what significance is inventory turnover to a retail store?

> Deere and Company reported inventory in its balance sheet as follows. Inventories $1,999,100,000 What additional disclosures might be necessary to present the inventory fairly?

> (a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data. (b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inf

> The conventional retail inventory method yields results that are essentially the same as those yielded by the lower of cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.

> What conditions must exist for the retail inventory method to provide valid results?

> A fire destroys all of the merchandise of Assante Company on February 10, 2014. Presented below is information compiled up to the date of the fire. What is the approximate inventory on February 10, 2014?

> Adriana Co., with annual net sales of $5 million, maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?

> Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331/3%. Convert the fol

> What are the major uses of the gross profit method?

> What are reversing entries, and why are they used?  

> Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?  

> Distinguish between cash-basis accounting and accrual basis accounting. Why is accrual-basis accounting acceptable for most businesses and the cash-basis unacceptable in the preparation of an income statement and a balance sheet?  

> Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent CPA to convert its cash-basis income statement data to

> Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)  

> What are the primary characteristics of an annuity? Differentiate between an “ordinary annuity” and an “annuity due.”  

> Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.  

> When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period. 1. The prepaid insurance account shows a debit of $5,280, representing the cost of a 2-year fire

> At the end of its first year of operations, the trial balance of Alonzo Company shows Equipment $30,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $2,000. Prepare

> Included in Gonzalez Company’s December 31 trial balance is a note receivable of $12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record $300 of accrued interest, and the February 1

> Dresser Company’s weekly payroll, paid on Fridays, totals $8,000. Employees work a 5-day week. Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the $8,000 cash payment on Friday, January 2. &nbsp

> LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche’s November 1 journal entry and the December 31 annual adjusti

> Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years’ insurance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30.  

> Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.  

> On July 1, 2014, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31.  

> Agazzi Repair Shop had the following transactions during the first month of business as a proprietorship. Journalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on

> What is interest cost? Briefly describe imputation of interest.  

> What guidance does the SEC provide for public companies with respect to the reporting of the “effect of preferred stock dividends and accretion of carrying amount of preferred stock on earnings per share”?  

> What distinguishes an item that is “unusual in nature” from an item that is considered “extraordinary”?  

> Access the glossary (“Master Glossary”) to answer the following. (a) What is a change in accounting estimate? (b) How is a change in accounting principle distinguished from a “change in accounting estimate effected by a change in ac

> How can earnings management affect the quality of earnings?  

> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and-Spencer-Annual-report-and-financial-statements-20

> Your client took accounting a number of years ago and was unaware of comprehensive income reporting. He is not convinced that any accounting standards exist for comprehensive income. Instructions Access the IFRS authoritative literature at the IASB w

> Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Instructions Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company cont

> Willie Nelson, Jr., controller for Jenkins Corporation, is preparing the company’s financial statements at year-end. Currently, he is focusing on the income statement and determining the format for reporting comprehensive income. During the year,

> Simpson Corp. is an entertainment firm that derives approximately 30% of its income from the Casino Knights Division, which manages gambling facilities. As auditor for Simpson Corp., you have recently overheard the following discussion between the cont

> Charlie Brown, controller for Kelly Corporation, is preparing the company’s income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipm

> Bobek Inc. has recently reported steadily increasing income. The company reported income of $20,000 in 2011, $25,000 in 2012, and $30,000 in 2013. A number of market analysts have recommended that investors buy the stock because they expect the steady

> What is earnings management?  

> Wade Corp. has 150,000 shares of common stock outstanding. In 2014, the company reports income from continuing operations before income tax of $1,210,000. Additional transactions not considered in the $1,210,000 are as follows. 1. In 2014, Wade Corp.

> Below is the Retained Earnings account for the year 2014 for Acadian Corp. Instructions (a) Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2014 to

> Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2014. Additional facts are as follows. 1. “Selling, general, and administrative expenses” for 2014 included a charge of $8,500,000

> The following account balances were included in the trial balance of Twain Corporation at June 30, 2014. The Retained Earnings account had a balance of $337,000 at July 1, 2013. There are 80,000 shares of common stock outstanding. Instruction

> Maher Inc. reported income from continuing operations before taxes during 2014 of $790,000. Additional transactions occurring in 2014 but not considered in the $790,000 are as follows. 1. The corporation experienced an uninsured flood loss (extraordinary

> The following information is related to Dickinson Company for 2014. Dickinson Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations t

> C. Reither Co. reports the following information for 2014: sales revenue $700,000; cost of goods sold $500,000; operating expenses $80,000; and an unrealized holding loss on available-for-sale securities for 2014 of $60,000. It declared and paid a cash

> Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?  

> Roxanne Carter Corporation reported the following for 2014: net sales $1,200,000; cost of goods sold $750,000; selling and administrative expenses $320,000; and an unrealized holding gain on available-for-sale securities $18,000. Instructions Prepare

> Tim Mattke Company began operations in 2012 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2014, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is

> At December 31, 2013, Shiga Naoya Corporation had the following stock outstanding. During 2014, Shiga Naoya did not issue any additional common stock. The following also occurred during 2014. Instructions Compute earnings per share data as

> Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows. The following information relates to 2014. Instructions (a) Prepare a 20

> The stockholders’ equity section of Tkachuk Corporation appears below as of December 31, 2014. Net income for 2014 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a resul

> Presented below is information related to Ivan Calderon Corp. for the year 2014. Instructions (a) Prepare a multiple-step income statement for 2014. Assume that 60,000 shares of common stock are outstanding. (b) Prepare a separate retained earni

> Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2014. Instructions (a) Compute net income for 2014. (b) Prepare a partial income statement beginning with income from continuing operations before income tax,

> The accountant of Latifa Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2014. There were 20,000 shares of common stock outstanding during the

> The following balances were taken from the books of Maria Conchita Alonzo Corp. on December 31, 2014. Assume the total effective tax rate on all items is 34%. Instructions Prepare a multiple-step income statement; 100,000 shares of common stock

> Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.  

> Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omi

> The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $92,000 and decre

> Presented below are certain account balances of Paczki Products Co. Instructions From the foregoing, compute the following: (a) Total net revenue, (b) Net income, (c) Dividends declared, and (d) Income attributable to controlling stockholders

> Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Instructions Compute the following: (a) Income from operations, (b) Net income, (c) Net income attributable to Viel Company&r

> Presented below are changes in all the account balances of Fritz Reiner Furniture Co. during the current year, except for retained earnings. Instructions Compute the net income for the current year, assuming that there were no entries in the Reta

> On January 1, 2014, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2014, it purchased for cash $20,000 of equity securities that it classified as available-

> Portman Corporation has retained earnings of $675,000 at January 1, 2014. Net income during 2014 was $1,400,000, and cash dividends declared and paid during 2014 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 201

> Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2014. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2011.  

> In 2014, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2014, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2014 earnings per share.

> During 2014, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2013 and 2012 (Williamson’s first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-avera

> Identify at least two situations in which important changes in value are not reported in the income statement.  

> Stacy Corporation had income before income taxes for 2014 of $6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation’s tax rate is 30%. Prepare a partial income statement fo

> Finley Corporation had income from continuing operations of $10,600,000 in 2014. During 2014, it disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2014.

> Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation. In BE-4-2 Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of g

> Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of goods sold $1,450,000; administrative expenses $212,000; selling expenses$280,000; and interest expense $45,000. Brisky’s t

> Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Prepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.  

> How should the disposal of a component of a business be disclosed in the income statement?  

> What is meant by the terms elements and items as they relate to the income statement? Why might items have to be disclosed in the income statement?  

> State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.  

> Generally accepted accounting principles usually require the use of accrual accounting to “fairly present” income. If the cash receipts and disbursements method of accounting will “clearly reflect” taxable income, why does this

> Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Di

> How can information based on past transactions be used to predict future cash flows?  

> On January 30, 2013, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2014, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should

> During 2014, Liselotte Company earned income of $1,500,000 before income taxes and realized a gain of $450,000 on a government-forced condemnation sale of a division plant facility. The income is subject to income taxation at the rate of 34%. The gain

> When does tax allocation within a period become necessary? How should this allocation be handled?  

> What is meant by “tax allocation within a period”? What is the justification for such practice?  

> Qualls Corporation reported 2014 earnings per share of $7.21. In 2015, Qualls reported earnings per share as follows. Is the increase in earnings per share from $7.21 to $8.28 a favorable trend?  

> Neumann Company computed earnings per share as follows. Net income / Common shared controlling at year-end Neumann has a simple capital structure. What possible errors might the company have made in the computation? Explain.  

> What effect does intraperiod tax allocation have on reported net income?  

> Lebron Co. owns most but not all of the shares of its subsidiary Bryant Inc. Lebron reported net income of $124,700. The amount to be attributed to the non-controlling interest in Bryant is $30,000. Indicate how Lebron will report the non-controlling i


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