(Identification of Income Statement Weaknesses) The following financial statement was prepared by employees of Walters Corporation.

WALTERS CORPORATION INCOME STATEMENT YEAR ENDED DECEMBER 31, 2012 Revenues Gross sales, including sales taxes $1,044,300 Less: Returns, allowances, and cash discounts 56,200 Net sales 988,100 Dividends, interest, and purchase discounts 30,250 Recoveries of accounts written off in prior years 13,850 Total revenues 1,032,200 Costs and expenses Cost of goods sold, including sales taxes 465,900 Salaries and related payroll expenses 60,500 Rent 19,100 Freight-in and freight-out 3,400 Bad debt expense 27,800 Total costs and expenses 576,700 Income before extraordinary items 455,500 Extraordinary items Loss on discontinued styles 71,500 Loss on sale of marketable securities 39,050 Loss on sale of warehouse 86,350 Total extraordinary items 196,900 Net income $258,600 Net income per share of common stock $2.30

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.