The following are transactions or items that are frequently reported in financial statements: 1. Income effect due

Question:

The following are transactions or items that are frequently reported in financial statements:

1. Income effect due to changing from the double-declining-balance method to the straight-line method of depreciation.

2. Collection of accounts receivable.

3. Purchase of an insurance policy on December 31 that provides coverage for the following year.

4. Accrued wages earned by the employees.

5. Estimated uncollectible accounts receivable using the aging method.

6. Recognized a gain on the sale of plant equipment.

7. Recognized a loss when the government expropriated land for a highway.

8. Declared a dividend valued at $100,000.

9. Under the requirements of a debt covenant, appropriated a portion of retained earnings.

10. Received dividends on stocks held as a short-term investment. The dividends were declared and paid on the same day.

11. Recognized the cost of inventory sold during the year under the periodic method.

12. Paid rent for the current year.

a. Indicate whether each item would be included on the company’s income statement, statement of shareholders’ equity, or neither, using the following codes:

IS Income statement

SE Statement of shareholders’ equity

N Neither

b. Indicate whether the items you coded IS would be considered (1) usual and frequent, (2) unusual or infrequent, (3) unusual and infrequent, or (4) other.

c. Provide a brief explanation of your choice in (b) of (1), (2), (3), or (4).

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