Judgment Case 4-7

Income statement presentation

LO4-3, LO4-4, LO4-5

The following events occurred during 2018 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material.

1.A manufacturing company recognized a loss on the sale of investments.

2.An automobile manufacturer sold all of the assets related to its financing component. The operations of the financing business is considered a component of the entity.

3.A company changed its depreciation method from the double-declining-balance method to the straight-line method.

4.Due to obsolescence, a company engaged in the manufacture of high-technology products incurred a loss on the write-down of inventory.

5.One of your clients discovered that 2017's depreciation expense was overstated. The error occurred because of a miscalculation of depreciation for the office building.

6.A cosmetics company decided to discontinue the manufacture of a line of women's lipstick. Other cosmetic lines will be continued. A loss was incurred on the sale of assets related to the lipstick product line. The operations of the discontinued line is not considered a component of the entity.

Required:

Discuss the 2018 financial statement presentation of each of the above events. Do not consider earnings per share disclosures.