A combined statement of income and retained earnings for DC 5 Ltd. for the year ended December 31, 2014, follows. (As a private company, DC 5 has elected to follow ASPE.) Also presented are three unrelated situations involving accounting changes and the classification of certain items as ordinary or unusual. Each situation is based on the combined statement of income and retained earnings of DC 5 Ltd.
Situation1. In late 2014, the company discontinued its apparel fabric division. The Joss on the sale of this discontinued division amounted to 5620,000. This amount was included as part of selling, general, and administrative expenses.
Before its disposal, the division reported the following for 2014: sales revenue of $ 1.2 million; cost of goods sold of $600,000; and selling, general, and administrative expenses of5450,000.
Situation 2. At the end of 2014, the company's management decided that the estimated loss rate on uncollectible accounts receivable was too low. The Joss rate used for the years 2013 and 2014 was 1.2% of total sales revenue, and owing to an increase in the write off of uncollectible accounts, the rate was raised to 3% of total sales revenue. The an10unt recorded in Bad Debt Expense under the heading Selling, General, and Administrative Expenses for 2014 was $68,400 and for 2013 it was $75,000.
Situation 3. On January I, 2012, the company acquired machinery at a cost of 5500,000. The company adopted the declining-balance method of depreciation at a rate of 20% for this machinery, and had been recording depreciation over an estimated life of 10 years, with no residual value. At the beginning of 2014, a decision was made to adopt the straight-line method of depreciation for this machinery. Depreciation for 2014, based on the straight-line method, was included in selling, general, and administrative expenses.
For each of the three unrelated situations, prepare a revised combined statement of income and retained earnings for DC 5 Ltd. The company has a 3 0% income tax rate.

  • CreatedSeptember 18, 2015
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