Patrick's Party Palace, (P3), purveyors of fine party supplies and fun adventures, had the following transactions/situations...

  

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Patrick's Party Palace, (P3), purveyors of fine party supplies and fun adventures, had the following transactions/situations that either happened in 2020 (or were from prior years but not discovered until 2020) that have NOT, unless otherwise indicated, been addressed/recorded. NOTE: P3 has a tax rate of 32% for the current and all future years. 1. During 2020, P3 decided to cease operations at its costume production factory. The decision was announced April 1, operations ceased on October 31st. Between January 1 and March 31, the costume division had revenues of $1,000,000 and expenses of $450,000. From April 1 until October 31, the division had revenues of $2,200,000 and expenses of $2,400,000. All revenues and expenses were recorded and are included in the appropriate revenue and expense accounts in the 2020 trial balance. The factory facility was rented and paid up through Oct. 31. Machinery and equipment associated with the factory, with a book value of $1,400,000, will be sold in 2021. The fair value of that machinery and equipment is $842,000. The disposal of the division meets the criteria to be accounted for as a discontinued operation. The assets being disposed of meet the criteria to be considered held for sale assets. 2. P3 decided to change its method of inventory from the average cost method to the FIFO method. The effect of this change on prior years is to increase 2018 income by $600,000 and decrease 2019 income by $200,000, both before taxes. The FIFO method was used in 2020. 3. An unusual flood resulted in damages of $413,000 at one of P3 's warehouses during 2020. The facility did not carry flood insurance as the warehouse was not in an area likely to flood. Patrick's Party Palace, (P3), purveyors of fine party supplies and fun adventures, had the following transactions/situations that either happened in 2020 (or were from prior years but not discovered until 2020) that have NOT, unless otherwise indicated, been addressed/recorded. NOTE: P3 has a tax rate of 32% for the current and all future years. 1. During 2020, P3 decided to cease operations at its costume production factory. The decision was announced April 1, operations ceased on October 31st. Between January 1 and March 31, the costume division had revenues of $1,000,000 and expenses of $450,000. From April 1 until October 31, the division had revenues of $2,200,000 and expenses of $2,400,000. All revenues and expenses were recorded and are included in the appropriate revenue and expense accounts in the 2020 trial balance. The factory facility was rented and paid up through Oct. 31. Machinery and equipment associated with the factory, with a book value of $1,400,000, will be sold in 2021. The fair value of that machinery and equipment is $842,000. The disposal of the division meets the criteria to be accounted for as a discontinued operation. The assets being disposed of meet the criteria to be considered held for sale assets. 2. P3 decided to change its method of inventory from the average cost method to the FIFO method. The effect of this change on prior years is to increase 2018 income by $600,000 and decrease 2019 income by $200,000, both before taxes. The FIFO method was used in 2020. 3. An unusual flood resulted in damages of $413,000 at one of P3 's warehouses during 2020. The facility did not carry flood insurance as the warehouse was not in an area likely to flood.

Answer rating: 100% (QA)

1 Discontinued Operations P3s decision to cease operations at its costume production factory meets the criteria to be accounted for as a discontinued operation Thus the company should record the incom... View the full answer