Question

Case Number 1: Using the data given below you are required to adjust the irregular items in its respective places.

Gross Profit $200,000 Advertisement Expense = $20,000 Selling and Admin Expense $50,000 Sales Discount = $3,000 Cost of Goods Sold $300,000 Rent Expense $10,000 Income Tax 20% Loss on sales of business subsidiary $150,000 Unrealized holding gain on available for sale securities $12,000

Overstatement of depletion expense related to previous year $22,000 Unusual and Infrequent item gain $34,000 Loss due to floods (Unusual or Infrequent item) $28,000 Uncollectable Expenses for the current year $8,000 Change in Accounting method $18,000

Requirement: 1-Assuming all irregular items values given are pretax and current year as 2020, you are required to prepare the,

 Prepare Income Statement based on the information given above.

 Prepared Statement of Retained Earnings after preparing income statement

Discuss why extraordinary item is adjusted below the net income and other irregular items are adjusted above the net income.

Answer 1

Solution: