Q6P_(b)
Question
Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.
Retained earnings, January 1, 2017 \(257,600
Add:
Gain on sale of investments (net of tax) \)41,200
Net income 84,500
Refund on litigation with government, related to
the year 2014 (net of tax) 21,600
Recognition of income earned in 2016, but omitted
from income statement in that year (net of tax) 25,400 172,700
430,300
Deduct:
Loss on discontinued operations (net of tax) 35,000
Write-off of goodwill (net of tax) 60,000
Cumulative effect on income of prior years in changing
from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200
Cash dividends declared 32,000 150,200
Retained earnings, December 31, 2017 $280,100
Instructions
(b) State where the items that do not appear in the corrected retained earnings statement should be shown
Step-by-Step Solution
VerifiedAll the items should be reported in the income statement according to their nature and their section, such as usual or unusual items, extraordinary items, continuing operations, and many more
An income statement comprises expenses and revenues that lead to the computation of profits or losses. In addition, various expenses, gains, losses, and revenues are further bifurcated into different categories, such as continuing and discontinued operations.
The gain on sale of investments should not be included in the usual activities of the business but reported under the extraordinary items.
Refund on litigation with the government should be reported in the income statement’s unusual items.
Under the unusual items section, writing off goodwill must be reported in the income statement.
Loss on discontinued operations should be reported in the income statement separately from continuing operations.