ACCT2005

CA4 4 (LO 1) (Income Reporting Items) Simpson Group is an entertainment firm that derives approximately 30% of its income from the Camino Knights Division, which manages gambling facilities. As auditor for Simpson, you have recently overheard the following discussion between the controller and financial vice president VICE If we sell the Casino Knights Division, it seems ridiculous to segregate the results of the sale in the income statement. Separate PRESIDENT Categories tend to be absurd and confusing to the shareholders, I believe that we should simply report the gain on the sale as other Income or expense without detail. CONTROLLER: IF/RS would require that we disclose this information more fully in the income statement as a gain on discontinued operations. VICE What about the walkout we had last month when employees were upset about their commission income? We had a loss as a result PRESIDENT of this walkout. CONTROLLER: I am not sure where this loss would be reported. VICE Oh well, it doesn't make any difference because the net effect of all these items is immaterial, so no disclosure is necessary. PRESIDENT Instructions #. Using the information above, answer the following questions: Who is correct about handling the sale? What would be the correct income statement presentation for the sale of the Casino Knights Division? b, How should the walkout by the employees be reported? E, What do you think about the vice president's observation on materiality? d, What are the earnings per share implications of these topics