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Homework answers / question archive / Circle the direction of change in net income for 2002 and provide its dollar amount for each case below
Circle the direction of change in net income for 2002 and provide its dollar amount for each case below. If net income is not affected, circle nothing and write "zero" as the amount of change. 1. Evans Manufacturing decided to discontinue its chemicals division on July 1, 2002. The division had a loss of $15,000 from its operations in 2002 and a $60,000 loss on disposal of assets. The income tax rate is 40%. Discontinued operations will increase decrease net income by $ for 2002 (circle one) [12] 2. Lloyd Industries changed from average cost to FIFO in accounting for its inventory. The cumulative effect of this change on prior years was to increase income before income taxes by $80,000. The income tax rate is 30%. This accounting change will increase decrease net income by $ for 2002 (circle one) 3. Crawford Furnace sold merchandise costing $180,000 for $250,000 in 2002. In addition, inventory costing $40,000 was destroyed by an earthquake (extremely rare in the area). The come tax rate is 40% Crawford should report extraordinary items on its income statement that will increase decrease net income by $. for 2002 (circle one) 4. In 2001. Julie's Bakery recorded $20,000 of amortization expense on newly purchased equipment. Only $10,000 of amortization should have been recorded. This error was discovered and corrected in 2002. The income tax rate is 40% for both years. This error will increase decrease net income by $ for 2002 (circle one)
| 1) | ||
| Decrease | ||
| Net Income by - | ||
| Loss on Operation ,net of tax | 15000-40% | 9000 |
| Loss On dspososal of Assets,net of tax | 60000-40% | 36000 |
| Total decrease in net income | $45000 |
2)
Change in accounting Principle i.e inventory cost flow assumption from average cost to FIFO wil be treated by adjusting begining retained earnings of the earliest period presented to reflect the effect of change on all prior periods not presented.
Prior periods presented are adjusted to show new reporting entity as if existed in that form all along.
Hence net income for 2002 will not be affected .
3)
| Decrease | |
| Net Income by | |
| Loss On earthquake 40000-40% (net of tax) | $24000 |
4)Material error made in prior period financial statement are corrected by adjusting begining balance of of retained earnings,net of income tax effect for the earliest period presented.
Hence it will neither decrease nor increase the net income for 2002. Therefore,it has no affect on net income.
