Income statement adjustments
You have been hired by the CFO of Turnover Corporation, a public company. As the new senior accountant, you have been asked to help with the preparation of the 2020 income statement.
For 2020, Turnover reported pre-tax income from continuing operations of $3,150,000. However, you have been advised that the following transactions have not yet been considered.
1. A review of the company's depreciation policies for its computer equipment revealed that depreciation expense relating to 2020 was overstated by $19,000.
2. During the year, the company wrote off $62,500 in accounts receivable for which no allowance for doubtful accounts had been set up.
3. In 2020, the company sold old equipment for $160,000. The equipment had a net book value of $120,000.
4. During the year, Turnover disposed of one its subsidiaries. The CFO tells you that the transaction meets the criteria for discontinued operations. The after-tax losses on the subsidiary's operations and from disposal were $120,000 and $290,000, respectively.
5. The company made a payment of $400,000 to settle a lawsuit. The lawsuit related to a 2015 event that the company lawyers had been working on since that time. Based on the lawyers' advice, no contingent liability had been set up.
Instructions
In good form, prepare a partial 2020 income statement for Turnover, taking into account the effects (if any) of the above items. The statement should start with income from continuing operations before income taxes. Unless otherwise indicated, you may assume an income tax rate of 40% for all items. Earnings per share calculations are not required.

Question

Quizplus · Accepted Answer

The Answer of Income statement adjustments
You have been hired by the CFO of Turnover Corporation, a public company. As the new senior accountant, you have been asked to help with the preparation of the 2020 income statement.
For 2020, Turnover reported pre-tax income from continuing operations of $3,150,000. However, you have been advised that the following transactions have not yet been considered.
1. A review of the company's depreciation policies for its computer equipment revealed that depreciation expense relating to 2020 was overstated by $19,000.
2. During the year, the company wrote off $62,500 in accounts receivable for which no allowance for doubtful accounts had been set up.
3. In 2020, the company sold old equipment for $160,000. The equipment had a net book value of $120,000.
4. During the year, Turnover disposed of one its subsidiaries. The CFO tells you that the transaction meets the criteria for discontinued operations. The after-tax losses on the subsidiary's operations and from disposal were $120,000 and $290,000, respectively.
5. The company made a payment of $400,000 to settle a lawsuit. The lawsuit related to a 2015 event that the company lawyers had been working on since that time. Based on the lawyers' advice, no contingent liability had been set up.
Instructions
In good form, prepare a partial 2020 income statement for Turnover, taking into account the effects (if any) of the above items. The statement should start with income from continuing operations before income taxes. Unless otherwise indicated, you may assume an income tax rate of 40% for all items. Earnings per share calculations are not required.

Income Statement Adjustments You Have Been Hired by the CFO of Turnover Corporation