A subsequent event for an entity with a December 31, 2008, year-end would not in

Question

A subsequent event for an entity with a December 31, 2008, year-end would not include:
a. A change in the estimated useful lives of equipment in January 2009.
b. An issuance of bonds in January 2009.
c. An acquisition of another company in January 2009.
d. A major uncertainty at December 31, resolved in January 2009.

An example of an error would be:
a. Purchasing inventory from a related party.
b. Carelessly counting an inventory item twice when taking a physical inventory.
c. Holding back invoices so that accounts payable are understated.
d. Receiving kickbacks in exchange for issuing a purchase order to a vender.

Popson Inc incurred a material loss which was not unusual in character, but was clearly an infrequent occurance. This loss should be reported as:
a. An extraordinary loss
b. A separate line item between income from continuing operations and income from
discontinued operations.
c. A separate line item within income from continuing operations
d. A separate line item in Other Comprehensive Income

Louie’s Construction Co.’s 2005 income from continuing operations before income taxes was $280,000. Louie’s reported a before-tax extraordinary gain of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2005, Louie’s would show the following line-item amounts for net income and income tax expense, respectively:

a. $198,000 and $112,000
b. $230,000 and $92,000
c. $330,000 and $132,000
d. $198,000 and 79,000

Explanation / Answer

A subsequent event for an entity with a December 31, 2008, year-end would not include: d. A major uncertainty at December 31, resolved in January 2009. An example of an error would be: b. Carelessly counting an inventory item twice when taking a physical inventory. Popson Inc incurred a material loss which was not unusual in character, but was clearly an infrequent occurance. This loss should be reported as: a. An extraordinary loss Louie’s Construction Co.’s 2005 income from continuing operations before income taxes was $280,000. Louie’s reported a before-tax extraordinary gain of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2005, Louie’s would show the following line-item amounts for net income and income tax expense, respectively: c. $330,000 and $132,000

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