Classification and interpreting income statements Dyreng Plc. (Dyreng), a Belgian-based construction firms, reported the following information for
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Further information available to you reveals the following six items, with all euro amounts reported in thousands.
a. During 2008 Dyreng signed an agreement with the City of London to build a new terminal at Gatwick airport. The construction will commence in 2009. As evidence of its commitment to the project, the City of London gave Dyreng a deposit of ¬80 toward the contract price of ¬240. Dyreng recognized revenues in 2008 of ¬240 on this transaction. Because Dyreng had not yet performed work, it recorded no costs of sales at the time it recognized the revenue.
b. Dyreng recognized revenues of ¬700 in 2008 related to a contract signed in 2007. It had performed all the work in 2007, but the customer did not remit payment until 2008. It recognized the cost of the work performed, ¬660, as expense when it recognized the revenue.
c. In 2008 Dyreng consolidated its administrative functions and sold an office building for ¬560. The carrying value of the building was ¬600. The firm reported this transaction in revenues and cost of sales, respectively.
d. After preparing its income statement for 2008, Dyreng realized that ¬45 of income associated with discontinued operations was included in Other Operating Income. Ignore tax effects in evaluating this transaction.
e. During 2008 Dyreng completed a renovation project. The contract price was ¬450, and the firm expended ¬230 in materials, labor, and overhead costs. Dyreng sent the bill to the client, but because it did not receive payment in 2008, the firm did not record this transaction in its income statement for 2008.
f. In 2008, a firm offered to pay Dyreng to lease the advertising space on scaffolding that Dyreng was erecting for a renovation project. The client offered Dyreng ¬960 to lease the advertising space for one year. Dyreng accepted the offer and recorded ¬960 as a reduction of the cost of sales of the renovation project. At the end of 2008, six months of the lease remained.
Evaluate the way Dyreng classified each of the six items on its income statement. If you disagree with this classification, state your reasoning and determine the effect on the firms gross profit and pretax profit from continuing operations from the alternative classification that you wouldrecommend.
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Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis
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