Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 4 - Income Statement and Related Information - Review and Practice - Concepts For Analysis - Page 191: CA4-5

Answer

a. Sales taxes should be deducted from gross sales to arrive at the figure for net sales. b. The "dividends, interest and purchase discounts" should not fall under total revenues. Dividends are included in the retained earnings statements. Interest should be specified, whether it is an expense or income, for it to be placed in the right section. Purchase discounts should be deducted from gross purchases when computing the cost of goods sold. c. The cost of goods sold should be net of applicable tax. d. The subtitle “Other items” depicting infrequent losses should be under expenses.

Work Step by Step

a. Sales taxes should be deducted from gross sales to arrive at the figure for net sales. b. The "dividends, interest and purchase discounts" should not fall under total revenues. Dividends are included in the retained earnings statements. Interest should be specified, whether it is an expense or income, for it to be placed in the right section. Purchase discounts should be deducted from gross purchases when computing the cost of goods sold. c. The cost of goods sold should be net of applicable tax. d. The subtitle “Other items” depicting infrequent losses should be under expenses.
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