The following financial statement was prepared by employees of Intellisys which follows ASPE:
Intellisys Income Statement
Year Ended December 31, 2020
Sales revenue
Gross sales revenue, including sales taxes ………………………….. $1,044,300
Less: Sales returns and allowances ……………………………………………. 56,200
Net sales revenue ……………………………………………………………………. 988,100
Dividend revenue, interest income, and purchase discounts ……… 30,250
Recoveries of accounts written off in prior years ……………………….. 13,850
Total revenues ………………………………………………………………………. 1,032,200
Operating expenses
Cost of goods sold ……………………………………………………………………. 465,900
Salaries and wages expense ………………………………………………………. 60,500
Rent expense …………………………………………………………………………….. 19,100
Freight in and freight out …………………………………………………………….. 3,400
Bad debt expense ……………………………………………………………………… 27,800
Total operating expenses ………………………………………………………… 576,700
Income before unusual items ………………………………………………….. 455,500
Unusual items
Loss on discontinued styles (Note 1) ………………………………………….. 37,000
Loss on disposal of FV-NI investments (Note 2) …………………………… 39,050
Loss on disposal of warehouse (Note 3) ……………………………………… 86,350
Tax assessments for 2019 and 2018 (Note 4) ……………………………… 34,500
Total unusual items ………………………………………………………………….. 196,900
Net income ……………………………………………………………………………. $ 258,600
Net income per common share …………………………………………………… $ 2.30
Note 1: New styles and rapidly changing consumer preferences resulted in a $37,000 loss on the disposal of discontinued styles and related accessories.
Note 2: The sold an investment in trading securities at a loss of $39,050. The normally sells securities of this type.
Note 3: The sold one of its warehouses at an $86,350 loss (net of taxes).
Note 4: The was charged $34,500 for additional income taxes resulting from a settlement in 2020. Of this amount, $17,000 was for 2019, and the balance was for 2018. This type of litigation recurs frequently at Intellisys Corporation.
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 recent professional pronouncements.
