[calicpa]

Wouldn’t the sales returns of 34k also effect COGS? Not just a decrease of sales of 34k?

A company’s activities for year two included the following:

Gross sales $3,600,000

Cost of goods sold 1,200,000

Selling and administrative expense 500,000

Adjustment for a prior-year understatement of amortization expense 59,000

Sales returns 34,000

Gain on sale of available-for-sale securities 8,000

Gain on disposal of a discontinued business segment 4,000

Unrealized gain on available-for-sale securities 2,000

The company has a 30% effective income tax rate. What is the company’s net income for year two?

A. $1,267,700

B. $1,273,300

C. $1,314,600

D. $1,316,000

Correct!

All items are included in net income except the prior year adjustment to amortization expense and the unrealized gain on the AFS securities. The pre-tax income is $1,878,000 and after 30% taxes the net income is $1,314,600.

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[barelystayingsane]

It definitely could if the returned items were put back into inventory. However, the question does not make any mention of this, so just assume that the goods were broken or something and were not put back into inventory.

[barelystayingsane]

It definitely could if the returned items were put back into inventory. However, the question does not make any mention of this, so just assume that the goods were broken or something and were not put back into inventory.

[calicpa]

ok good point. thanks

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[calicpa]

ok good point. thanks

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[jessanqi]

why the Adjustment for a prior-year understatement of amortization expense not included in expense of the IS??

Anyone can help??

[Anonymous]

Correction of an error (prior-year understatement of amort) is a restatement and does not effect current income.

Furthermore, going far beyond the call of the question: since net income in prior periods will be reduced, your current balance sheet will be effected. Retained earnings, among other accounts depending on stock compensation covenants, will be reduced in the current period.

[Author]

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