The following events occurred during 2011 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material.

1. A manufacturing company recognized a loss on the sale of investments.
2. An automobile manufacturer sold all of the assets related to its financing component. The operations of the financing business are considered a component of the entity.
3. A company changed its depreciation method from the double-declining – balance method to the straight-line method.
4. Due to obsolescence, a company engaged in the manufacture of high-technology products incurred a loss on inventory writes down.
5. One of your clients discovered that 2020’s depreciation expense was overstated. The error occurred because of a miscalculation of depreciation for the office building.
6. A cosmetics company decided to discontinue the manufacture of a line of women’s lipsticks. Other cosmetic lines will be continued. A loss was incurred on the sale of assets related to the lipstick product line. The operations of the discontinued line are not considered a component of the entity.

Determine whether each of the above events would be reported as income from continuing operations. Income from discontinued operations, or not reported in the current year’s income statement.

If the item is reported on the income statement, list the specific section where the item would be reported. If it is listed in the continuing operations section, also list the line where it would be reported or where the effect of the item would be found. For example, would it be listed as revenue, cost of goods sold, an operating expense, etc? If it is not reported on the income statement, state where it would be reported. Any additional information is welcome.

Answer rating: 100% (QA)

A manufacturing company recognized a loss on the sale of investments When a manufacturing company recognizes loss on the sale of investments the loss ... View the full answer