Adam's Company prepared the following Income Statement for review by its auditor Income Statement For the year
Question:
Adam's Company prepared the following Income Statement for review by its auditor
Income Statement
For the year Ended 12/31/19
Sales$7,500,000
Cost of goods sold 3,800,000
Gross profit 3,700,000
Operating expenses 1,900,000
Income before income taxes 1,800,000
Income tax expense (30%) 540,000
Net income $1,260,000
Adam's company has had 200,000 shares of common stock outstanding all year.
Included in cost of goods sold is an unusually large $250,000 writedown of obsolete inventory. Operating expenses include
(a) additional bad debt expense of $50,000 due to a decision to increase the Allowance for Doubtful Accounts because of a change in economic conditions, and
(b) a loss of $100,000 due to a fire in the warehouse.
On October 1, Adam decide to spin-off its manufacturing division, which the auditor determines is a separate business segment. After this decision, Adam omitted the division from the income statement. The division's operating loss up to 10/1/19 was $150,000. After 10/1/19, it lost an additional $40,000. Adam expects to sell the net assets in January 2020.
Required: Prepare the corrected income statement for Adam that would be prepared by the auditor in accordance with GAAP.
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay