Question 3.2 (Total: 22 marks; 2 marks each)

For each of the items listed below, indicate how it should be treated in the financial statements. Use the following letter code for your selections:

a. Ordinary item on the income statement

b. Discontinued operations

c. Unusual item on the income statement

d. Adjustment to prior years retained earnings

_____ 1. The bad debt rate was increased from 1% to 2% of sales, thus increasing bad debt expense.

_____ 2. Obsolete inventory was written off. This was a material amount, and the first loss of this type in the company's history.

_____ 3. An uninsured earthquake loss was incurred. This was the first loss of this type in the company's history.

_____ 4. Recognition of revenue earned last year, inadvertently omitted from last year's income statement.

_____ 5. The company sold one of its warehouses at a loss.

_____6. Settlement of a court case involving the federal government, related to income taxes of three years ago. The company is continually involved in various adjustments with the federal government related to its taxes.

_____ 7. A loss incurred from expropriation the company owned resources in South America which were taken over by a dictator unsympathetic to Canadian business interests.

_____ 8. The company failed to record depreciation in the previous year.

_____ 9. Discontinuance of all production in Canada. The manufacturing operations were relocated to Honduras.

_____ 10. Loss on sale of investments. The company last sold some of its investments two years ago.

_____11. Loss on the disposal of a segment of the business.