(Identification of Income Statement Weaknesses) The following financial statement was prepared by employees of Walters Corporation.
|
WALTERS CORPORATION |
|
|
Revenues |
|
|
Gross sales, including sales taxes |
$1,044,300 |
|
Less: Returns, allowances, and cash discounts |
56,200 |
|
Net sales |
988,100 |
|
Dividends, interest, and purchase discounts |
30,250 |
|
Recoveries of accounts written off in prior years |
13,850 |
|
Total revenues |
1,032,200 |
|
Costs and expenses |
|
|
Cost of goods sold, including sales taxes |
465,900 |
|
Salaries and related payroll expenses |
60,500 |
|
Rent |
19,100 |
|
Freight in and freight out |
3,400 |
|
Bad debt expense |
27,800 |
|
Total costs and expenses |
576,700 |
|
Income before extraordinary items |
455,500 |
|
Extraordinary items |
|
|
Loss on discontinued styles |
71,500 |
|
Loss on sale of marketable securities |
39,050 |
|
Loss on sale of warehouse |
86,350 |
|
Total extraordinary items |
196,900 |
|
Net income |
$258,600 |
|
Net income per share of common stock |
$2.30 |
New styles and rapidly changing consumer preferences resulted in a $71,500 loss on the disposal of discontinued styles and related accessories.
The corporation sold an investment in marketable securities at a loss of $39,050. The corporation normally sells securities of this nature.
The corporation sold one of its warehouses at an $86,350 loss.
Instructions
Identify and discuss the weaknesses in classification and disclosure in the single step income statement above. You should explain why these treatments are weaknesses and what the proper presentation of the items would be in accordance with GAAP.