Hamad Corporation began operations on January 1, 2011. Recently the corporation has had several unusual accounting problems related to the presentation of its income statement for financial reporting purposes. The company follows ASPE.
You are the CA for Hamad and have been asked to examine the following data:
This information was also provided
1. The controller mentioned that the corporation has had difficulty collecting certain receivables. For this reason, the bad debt accrual was increased from I% to 2% of sales revenue. The controller estimates that if this rate had been used in past periods, an additional $83,000 worth of expense would have been charged. The bad debt expense for the current period was calculated using the new rate and is part of selling and administrative expense.
2. There were 400,000 common shares outstanding at the end of 2014. No additional shares were purchased or sold
3. The following items were not included in the income statement:
• Inventory in the an10unt of $112,000 was obsolete.
• The company announced plans to dispose of a recognized segment. For 2014, the segment had a loss, net office, of $162,000.
4. Retained earnings as at January I, 2014, were S2.8 million. Cash dividends of$700,000 were paid in 2014.
5. In January 2014, Han1ad changed its method of accounting for plant assets from the straight-line method to the diminishing balance method. The controller has prepared a schedule that shows what the depreciation expense would have been in previous periods if the diminishing balance method had been used.
6. In 2014, Hamad discovered that in 2013 it had failed to record $20,000 as an expense for sales commissions. The sales commissions for 2013 were included in the 2014 expenses.
(a) Prepare the income statement for Hamad Corporation. Do not prepare notes to the financial statements. The effective tax rate for past years was 30%.
(b) Prepare a combined statement of net income and retained earnings.
(c) From the perspective of the reader of the financial statements, what is the purpose of intra period tax allocation for the statements of income and retained earnings?

  • CreatedSeptember 18, 2015
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