Company inc. is preparing its financial statements. The company's accountant calculated Income from Continuing Operations to...
Company inc. is preparing its financial statements. The company's accountant calculated Income from Continuing Operations to be $500,000, but is not certain this number is accurate. Please review the following three scenarios and determine the appropriate adjustment to Income from Continuing Operations, if any, that is required for each item. All amounts listed are pre-tax unless otherwise noted. Corporate income tax rate is 30%.
The Company has an unrealized loss on a Hedging Transaction of $10,000 (pre-tax). The loss was included in determining the $500,000 Income from Continuing Operations.
1. Should this be included in ICO?
2. If yes, under which section of the Income Statement would this loss be found?
3. If no, what amount should be reversed from ICO?
The Company purchased a truck for $50,000 on January 1, 2016. The truck had an estimated salvage value of $5,000 and an estimated useful life of 10 years. The company uses the straight-line depreciation method. On January 1, 2019, they revised the estimated salvage value to $10,000, but did not change the useful life. The accountant recorded depreciation expense using the old salvage value when calculating the $500,000 ICO.
1. Is an adjustment needed to the Income for Continuing Operations for 2019?
2. If yes, what type of adjustment?
3. If yes, what is that amount of the adjustment needed?
On March 1, 2019, company x discovered that R&D costs of $150,000 for 2017 were capitalized as a part of the Historical Cost of the Patent, instead of being expensed. Income from Continuing Operations for 2019 includes the current year's R&D costs of $125,000 as an expense.
1. What type of scenario is addressed?
2. What adjustment (if any) is needed to ICO for 2019?
3. Does the company need to restate its 2017 financial statements?