Question

Norse Manufacturing Inc. prepares an annual single, continuous statement of income and comprehensive income. The following situations occurred during the company's 2018 fiscal year, 1. Restructuring costs were incurred due to the closing of a factory. 2. Investments were sold, and a loss was recognized 3. A positive foreign currency translation adjustment was recognized. 4. Interest expense was incurred. 2. A division was sold that qualifies as a separate component of the entity according to GAAP. 6. Obsolete inventory was written off. 7. The controller discovered an error in the calculation of 2017's patent amortization expense. Required: 1. For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material): As a component of operating income As a nonoperating income item (other income or expense) As a discontinued operation As an other comprehensive income item As an adjustment to retained carnings 2. Identify the situations that would be reported net-of-tax.

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Answer 1

1) Solution: As a component of operating income

Explanation: The restructuring costs on the closing of a factory would be treated as component of operating income

2) Solution: As an other comprehensive income item

Explanation: The loss on sale of investments must be shown as"other comprehensive income"

3) Solution: As an other comprehensive income item

Explanation: Gains from translation of foreign currency would be reported as other comprehensive income

4) Solution: As an non-operating income item (other income or expense)

Explanation: Interest expense was incurred would be reported as a non-operating income item

5) Solution: As discontinued operations

Explanation: When the division is sold that qualifies as a separate component of the entity as per GAAP it would be reported as a separately reported item

6) Solution: As a component of operating income

Explanation: When obsolete inventory is written off it need to be shown as a component of operating income

7) Solution: As an adjustment to retained earnings

Explanation: When controller discovered an error from the computation of 2012's ‘patent amortization expense it need to be reported as an adjustment to retained earnings