Rutland Corporation had several rather special transactions and events in 1990 which are described below: a. Rutland

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Rutland Corporation had several rather special transactions and events in 1990 which are described below:

a. Rutland Corporation's continuing operations involve a high-technology production process. Technical developments in this area occur regularly and the production machinery becomes obsolete surprisingly often. Because such developments occurred recently, Rutland decided that it was forced to sell certain items of machinery at a loss and replace those items with a different type of machinery. The problem is how to report the loss.

b. Early last year, Rutland purchased a new type of equipment for use in its production process. Although much of the production equipment is depreciated over 5 years, a careful analysis of the situation led the company to decide that the new equipment should be depreciated over 10 years. Nevertheless, in the rush of year-end activities, the new equipment was included with the older equipment and depreciated on a 5 -year basis. In preparing adjustments at the end of 1990 , the accountant discovered that \(\$ 90,000\) depreciation was taken on the new equipment last year, when only \(\$ 45,000\) should have been taken. The company is subject to a \(30 \%\) income tax rate.

c. Rutland has a mining operation in several foreign countries, one of which has been subject to political unrest. After a sudden change in governments, the new ruling body resolved that the amount of foreign investment in the country was excessive. As a result, Rutland was forced to transfer ownership in its mines in that country to the new government. Rutland was able to continue its mining operation in a neighboring country and was allowed to transfer much of its mining equipment to the neighboring country. Nevertheless, the price paid to Rutland for its mines resulted in a significant loss.

d. Two years earlier, Rutland Corporation purchased some highly specialized equipment that was to be used in the operations of a new division that Rutland intended to acquire. The new division was in a separate line of business and would have been a separate segment of the business. After lengthy negotiations, the acquisition of the division was not accomplished and the company abandoned any hope of entering that line of business. Although the equipment had never been used, it was sold in 1990 at a loss. Rutland Corporation does not have a history of expanding into new lines of business and has no plans of doing so in the future.

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Examine Rutland Corporation's special transactions and events and describe how each one should be reported on the income statement or statement of retained earnings. Also state the specific characteristics of the item that support your decision.

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Financial Accounting

ISBN: 9780256091939

5th Edition

Authors: Kermit D. Larson, Paul B. W. Miller

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