Question

E4.7 (LO2, 3, 5) (Income Statement) The accountant of Weatherspoon Shoe Co. has compiled the following information from the company's records as a basis for an income statement for the year ended December 31, 2019. Rent revenue £ 29,000 Interest expense 18,000 Unrealized gain on non-trading equity securities, net of tax 31,000 Selling expenses 140,000 Income tax 30,600 Administrative expenses 181,000 Cost of goods sold 516,000 Net sales 980,000 Cash dividends declared 16,000 Loss on sale of plant assets 15,000 There were 20,000 ordinary shares outstanding during the year. Instructions a. Prepare a comprehensive income statement using the combined statement approach. b. Prepare a comprehensive income statement using the two statement approach. c. Which format do you prefer? Discuss.

Answer 1

Solution as per Below Image

Which Format To Prefer:

Comprehensive Income Statement Combined Statement Approach For the year Ended December 31,2019 Amount in £ 980000 516000 464000 Particulars Net Sales Cost of Goods Sold Gross Profit Operating Expenses: Administrative Expenes Selling Expenses Interest Expense Income from Continuing Operations Before income taxes Income Taxes Income from Continuing Operations Discontinued Operations Net Income Other Comprehensive Income: Rent Revenue Unrealized gain on non trading Equity Securities, Net of Tax Loss on Sale of Plant Assets Other Comprehensive Income for the year 181000 140000 18000 125000 30600 94400 94400 29000 31000 - 15000 45000 Total Comprehensive Income For the Year 139400 Two Statement Approach Income Statement For the year Ended December 31, 2019 Amount in £ 980000 516000 464000 Particulars Net Sales Cost of Goods Sold Gross Profit Operating Expenses: Administrative Expenes Selling Expenses Interest Expense Income Before taxes Income Taxes Net Income 181000 140000 18000 125000 30600 94400 94400 Comprehensive Income Statement For the year Ended December 31, 2019 Net Income Other Comprehensive Income: Rent Revenue Unrealized gain on non trading Equity Securities, Net of Tax Loss on Sale of Plant Assets Other Comprehensive Income for the year 29000 31000 - 15000 45000 Comprehensive Income For the Year 139400

It is an option available to entities to present financial results using any of the two approaches.Small entities are not required to present the ‘other comprehensive income’ content unless it is necessary in order to give a true and fair view. Many entities have no gains or losses that are recognised in other comprehensive income. For those who do, a decision needs to be made on whether other comprehensive income needs to be presented, and if so, whether a one or two statement approach is adopted. Change from a single-statement to a two-statement approach (or vice versa) is treated as a change in accounting policy.