The following financial statement was prepared by employees of Walters Corporation.

Note 1: New styles and rapidly changing consumer preferences resulted in a $71,500 loss on the disposal of discontinued styles and related accessories.

Note 2: The corporation sold an investment in marketable securities at a loss of $39,050. The corporation normally sells securities of this nature.

Note 3: The corporation sold one of its warehouses at an $86,350 loss.

Instructions

Identify and discuss the weaknesses in classification and disclosure in the single-step income statement above. You should explain why these treatments are weaknesses and what the proper presentation of the items would be in accordance with GAAP.

Transcribed Image Text:

Walters Corporation Income Statement Year Ended December 31, 2020 Revenues Gross sales, including sales taxes Less: Returns, allowances, and cash discounts $1,044,300 56,200 Net sales 988,100 Dividends, interest, and purchase discounts Recoveries of accounts written off in prior years 30,250 13,850 Total revenues 1,032,200 Costs and expenses Cost of goods sold, including sales taxes Salaries and related payroll expenses 465,900 60,500 Rent 19,100 Delivery expense and freight-in Bad debt expense 3,400 27,800 Total costs and expenses 576,700 Income before other items 455,500 Other items Loss on discontinued styles (Note 1) Loss on sale of marketable securities (Note 2) 71,500 39,050 Loss on sale of warehouse (Note 3) 86,350 Total other items 196,900 $ 258,600 Net income Net income per share of common stock $2.30