Question
Adjusting for Unusual Income Statement and Classification Items. Hennry company is marketer of branded foods to retail and foodservice channels. The following table present Henerys
Adjusting for Unusual Income Statement and Classification Items.
Hennry company is marketer of branded foods to retail and foodservice channels.
The following table present Henerys income statements for the year 10, year 11, and year 12.
Sales .................................................... | Year 10 $9431 | Year 11 $8821 | Year 12 $8939 |
Gain on Sale of Businesses................. | - | - | 465 |
Cost of Goods Sold ............................. | -6094 | -5884 | -5789 |
Selling and Administrative Expenses . | -1746 | -1955 | -1882 |
Interest Income ................................... | 27 | 23 | 25 |
Interest Expense.................................. | -294 | -333 | -270 |
Other (Income) Expense ..................... Income before Income Taxes and Cumulative Effect of Accounting Change............................................ | -45
1279
| 1
673 | -25
1463 |
Income Tax Expense........................... | -445 | -178 | -573 |
Income before Extraordinary item | 834 | 495 | 890 |
Extraordinary Loss.(net of tax)............................. | ---- | -17 | ---- |
Net Income.......................................... | 834 | 478 | 890 |
Notes to financial statements reveal the following
- Gain on sale of a portion of the branded product line. In year 10, Henry completed the sale of portion of one of its branded product lines for $735 million. The transaction resulted in pretax of $464.5 million. The sale did not qualify as a discontinued operation. Henry did not disclose the tax effect on the gain reported in worksheet.
- Extraordinary Loss. Year 11, Henry experienced an extraordinary loss when a subsidiary was expropriated during a military coup in a previously stable country. The loss was $17 million, net of income taxed of $10 million. Note: recently, US. GAAP and IFRS have prohibited the extraordinary item classification, which in the past was used to segregate peripheral gains and losses that were unusual in nature and infrequent in occurrence. Very few items were reported as extraordinary. Treat this item as you would treat any infrequent peripheral gain or loss.
- Sales and promotion costs. In year 11, Henry changed the classification of certain sale and promotion incentives provided to customers and consumers. In the past, Henry classified these incentives as selling and administrative refer to table, with the gross amount of the revenue associated with the incentives reported in sales. Beginning in year 11, Henry changed to reporting the incentives as a reduction of revenues. As a result of this charge, the firm reduced reported revenues by $693 million in year 12. $610 million in year11, and $469 million in year 10. The firm stated that selling and administrative expenses were correspondingly reduced such that net earnings were not affected table reflect the adjustments to sales and selling and administrative expenses for the year 10 through 12.
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