Generally Accepted Accounting Principles and Intangible Capital Assets Essay

Submitted By Lawrence-Nan
Words: 9136
Pages: 37


Below are listed six descriptions. To the left of each, you are to enter the one that best describes the "Manner of Reporting" listed (and lettered) to the right. 1. Declaration and payment of a cash dividend Revenues and expenses 5
2. Unrealized gains and losses on certain items that bypass the income statement Exceptional items 7
3. Correction of accounting error in prior period income Retroactive adjustment to retained earnings 3
4. Transactions that are either unusual or infrequent in occurrence but not both None of these answers; explain. 1
5. Sales and service revenues and expenses of the period Gains and losses (gross) 6
6. Increase or decrease in net assets due to the peripheral or incidental activities of the entity Other Comprehensive Income 2
7. Transactions that are both unusual and infrequent in occurrence and not subject to the influence of management or owners Exceptional items 4

Match the transactions given below with the appropriate classifications by entering the left of each transaction: 1. Revenue Canada assessed an additional material, nonrecurring income tax amount based on prior period incomes. The amount was based on an inadvertent error in reporting income taxes by the firm Income from continuing operations 3
2. A company honours warranty claims well past the warranty's expiry date. This practice has led to an expectation on the part of its customers that defective products can be repaired or replaced at the company's expense well past the warranty termination date. As a result of these past practices and expectations on the part of its customers, the company provides for warranty expenditures 2 years past the warranty expiration date, even though it is not legally obliged to do so Income from continuing operations 4
3. The gain on the sale of machinery used in the manufacturing operations of the business, assuming that the machinery was replaced by a newer model Income from continuing operations 5
4. A toy manufacturer with only one plant moved to another location for the first time and incurred $60,000 in moving costs Correction of prior years' errors 1
5. An international manufacturer of shoes discontinued production of its Italian styles and reported a net loss for the year from Italian operations Constructive Obligation 2

Assume an income statement with the following classifications:

1. Cash dividend received on short-term investment General and administrative expenses 9
2. Depreciation on plant that manufactures good for sale (prior to sale of the goods) Other revenues and expenses 7
3. Loss on sale of plant Other revenues and expenses 1
4. Dividend revenue from investments Cost of goods sold 2
5. Sales returns Distribution expenses 12
6. Interest expense Other Comprehensive Income 8
7. Amortization of a patent held as an investment Other Comprehensive Income 13
8. Income tax effect of loss on sale of plant Other revenues and expenses 6
9. Advertising expense Other revenues and expenses 10
10. Interest revenue Other revenues and expenses 3
11. Salary of company president Other revenues and expenses 4
12. Freight on sales General and administrative expenses 11
13. Income tax on gain on sale of short-term investment in securities Revenues 15
14. Services sold Revenues 5
15. Sales Revenues 14

In 2006, management of Simolin Company changed from straight-line to double-declining balance depreciation. The total difference in depreciation for all years through 2005 was $54,000 and for 2006 the difference was $6,200. The tax rate is 30%. Calculate the amount that should be reported in the statement of retained earnings for 2001 for this change.
Adjustment to retained earnings:
$54,000 X…