ABC Company is preparing its 2018 financialstatements. Income fromContinuing Operations(ICO) for 2018 was determined to be $1,800,000,but upon further review, ABC's accountant is not certain thisnumber is accurate. ABC has a corporate tax rate of 30%.Additionally, the company reports one year of financial data on theface of the financial statements. Use the following information todetermine the adjustments, if any, to correctly report Income FromContinuing Operations.
1. During 2018, ABC experienced a labor strike which closed downthe operations of one of its plants for an entire month. The pretaxloss of $875,000 was excluded when determining Income fromContinuing Operations because the bookkeeper was uncertain if thisevent qualified for discontinued operations, although the plant wasre-opened after the strike was settled and did not represent astrategic shift in the on-going operations for ABC. Additionally,this plant did not qualify as a component of ABC.
A. Determine the adjustment (if any) to correct Incomefrom Continuing Operations (ICO) for the labor strike.$_______
*If you need to increase ICO, enter your answer as apositive number; if you need to decrease ICO, enter your answer asa negative number using () parenthesis. If you determine that ABCtreated the labor strike correctly and that ICO does not need to beadjusted, enter NE for No Effect. You do not need to record youranswer using $ signs or commas.
Continuing with the information presented in #9 above, ABChas ICO of $1,800,000 and a corporate tax rate of 30%.Determine if ICO should be adjusted based on the followinginformation:
On October 1, 2016, ABCreceived $360,000 cash in advance for the sale of merchandise to acustomer. The contract specified that ABC would deliver theirproduct in equal monthly quantities over the next five years. WhenABC recorded the sale, the bookkeeper credited SalesRevenue. No adjusting or correcting entries were madealthough ABC has fulfilled their obligation to delivering the goodsas stipulated in the contract. ABC did not realize theerror until after the 2018 Income from Continuing Operations wascalculated at $1,800,000.
B. Determine the adjustment for Sales Revenue affectingICO for 2018: $______
C. Determine the effect of this error on RetainedEarnings (if any): $_______
*If you need to increase ICO, enter your answer as apositive number; if you need to decrease ICO, enter your answer asa negative number using () parenthesis. If you determine that ABCtreated the transaction correctly and that ICO does not need to beadjusted, enter NE for No Effect. You do not need to record youranswer using $ signs or commas.
Continuing with the information presented in #9 above, ABChas ICO of $1,800,000 and a corporate tax rate of 30%. Determine ifICO should be adjusted based on the following information:
ABC purchased equipment for $120,000 on January 1, 2013 with anestimated 10 year useful life and $10,000 salvage value. ABC usesthe straight-line method to depreciate this class of asset. At theend of 2018, ABC determined it was appropriate to change thedepreciation method of this asset to the Double-Declining-Balancemethod. The bookkeeper was unaware of this change and alreadycalculated 2018 ICO using the straight-line method.
D: Adjustment (if any) for Depreciation Expense (2018):$______
*If you need to increase ICO, enter your answer as apositive number; if you need to decrease ICO, enter your answer asa negative number using () parenthesis. If you determine that ABCtreated the transaction correctly and that ICO does not need to beadjusted, enter NE for No Effect. You do not need to record youranswer using $ signs or commas.
Continuing with the information presented in #9 above, ABChas ICO of $1,800,000 and a corporate tax rate of 30%. Determine ifICO should be adjusted based on the following information:
Over the past four years ABC has estimated bad debts based on 4%of accounts receivable. In 2018, after reviewing their majorclient's credit worthiness, they decided to change this estimate to3%. As of December 31st, ABC reported their accounts receivable at$860,000, and the Balance Before Adjustment in the Allowance forDoubtful Accounts was $10,100 (cr).
The $1,800,000 of ICO had been calculated prior to recording BadDebt Expense for 2018.
E: Adjustment for Bad Debt Expense for 2018:$______
*If you need to increase ICO, enter your answer as apositive number; if you need to decrease ICO, enter your answer asa negative number using () parenthesis. If you determine that ABCtreated the transaction correctly and that ICO does not need to beadjusted, enter NE for No Effect. You do not need to record youranswer using $ signs or commas.
In 2018, ABC had a foreign currency transaction gain on certaininventory purchases with overseas suppliers in the amount of$147,000 (pre-tax) and an unrealized loss (pre-tax) on pensionadjustments of $212,000. Neither of these events were included indetermining the $1,800,000 ICO.
F. Adjustment to 2018 ICO for the Foreign CurrencyTransaction: $______
G. Adjustment to 2018 ICO for the Pension Adjustment:$_______
*If you need to increase ICO, enter youranswer as a positive number; if you need to decrease ICO, enteryour answer as a negative number using () parenthesis. If youdetermine that ABC treated the transaction correctly and that ICOdoes not need to be adjusted, enter NE for No Effect. You do notneed to record your answer using $ signs orcommas.
Using the adjustments you made to Income From ContinuingOperations in questions 9-13 above, determine the CORRECTEDICO for 2018:
H: Corrected ICO for 2018 $_______
