Prepare an income statement under IFRS for year 1.

Assume that the net income remains the same under IFRS as it does for GAAP and any difference is reconciled in the tax expense and tax payable accounts.

ADJUSTING ENTRIES YEAR 1 TO CONFORM TO IFRS

1- Dr. Leased Asset-Financing Lease: 26,730

Cr. Minimum Lease Obligation-Financing Lease: 26,730

To record capitalization of the lease

2- Dr. Depreciation Expense: 8,910

Cr. Accumulated Depreciation: 8,910

To record depreciation expense on the capitalized lease

3- Dr. Interest Expense: 1,604

Dr. Minimum Lease Obligation-Financing Lease: 8,396

Cr. Rent expense/Selling and Administrative expense:10,000

To adjust lease from operating to capital/financing

4- Dr. Minimum Lease Obligation-Financing lease: 18,334

Cr. Minimum Lease Obligation-Financing lease -Current liability: 8,900

Cr. Minimum Lease Obligation-Financing lease -Long Term Liability: 9,434

To correctly classify the Minimum Lease Obligation to its liability term components

5- Dr. Selling and Administrative Expense: 15,000

Cr.- Extraordinary Item: 15,000

To reclassify extraordinary item as an operating expense

This is calculated by the extraordinary loss , shown net of taxes of 10,500 divided by 1 less the tax rate of 30 percent, or 0.7, which yields a before tax loss of 15,000.

The reclassification of the extraordinary loss is shown before tax (10,500+ 4,500)

6- Dr. Tax Payable 514

Cr. Tax Expense 514

To reconcile a net income total of $10,500; an amount equal to the GAAP reported total.

Table 2 ARK Corp. GAAP Income Statement for the year ended 12/31/2011 ARK Corp Income Statement (in 000's) 12/31/2011 Sales $ 250,000 Cost of goods sold 175,000 Gross profit $ 75,000 Selling and administrative expenses (Exclusive of amortization and depreciation) 31,000 Earnings before interest, taxes, depreciation and amortization $ 45,000 Amortization and depreciation expense 10,000 Earnings before interest and taxes $ 34,000 Interest expense 4,000 Income before tax $30,000 Tax expense (30 %) 9,000 Earnings from continuing operations and before Extraordinary item $21,000 Net loss from Hurricane (net of 4,500 taxes) (10,500) Net Income $10,500 Table 2 shows the GAAP Income Statement for the case. Students must covert this GAAP statement to an IFRS Statement. Table 2 ARK Corp. GAAP Income Statement for the year ended 12/31/2011 ARK Corp Income Statement (in 000's) 12/31/2011 Sales $ 250,000 Cost of goods sold 175,000 Gross profit $ 75,000 Selling and administrative expenses (Exclusive of amortization and depreciation) 31,000 Earnings before interest, taxes, depreciation and amortization $ 45,000 Amortization and depreciation expense 10,000 Earnings before interest and taxes $ 34,000 Interest expense 4,000 Income before tax $30,000 Tax expense (30 %) 9,000 Earnings from continuing operations and before Extraordinary item $21,000 Net loss from Hurricane (net of 4,500 taxes) (10,500) Net Income $10,500 Table 2 shows the GAAP Income Statement for the case. Students must covert this GAAP statement to an IFRS Statement