Question: Presented below is a combined single-step
Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2012.
Additional facts are as follows.
1. “Selling, general, and administrative expenses†for 2012 included a charge of $8,500,000 that was usual but infrequently occurring.
2. “Other, net†for 2012 included an extraordinary item (charge) of $6,000,000. If the extraordinary item (charge) had not occurred, income taxes for 2012 would have been $21,400,000 instead of $19,400,000.
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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(000 omitted) Net sales $640,000 Costs and expenses Cost of goods sold Selling, general, and administrative expenses Other, net $500,000 66,000 17,000 583,000 Income before income tax 57,000 19,400 Income tax Net income 37,600 Retained earnings at beginning of period, as previously reported Adjustment required for correction of error 141,000 (7,000) Retained earnings at beginning of period, as restated 134,000 Dividends on common stock (12,200) $159,400 Retained earnings at end of period
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