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Discuss the weaknesses in classification and disclosure

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    Assignment ID: FG133134594

    Question – Identification of Income Statement Weaknesses – The following financial statement was prepared by employees of ¬Walters Corporation.

    Walters Corporation Income Statement Year Ended December 31, 2020

    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 

    Delivery expense and freight-in 3,400 

    Bad debt expense 27,80 

    Total costs and expenses 576,700

    Income before other items 455,500

    Other items

    Loss on discontinued styles (Note 1) 71,500 

    Loss on sale of marketable securities (Note 2) 39,050 

    Loss on sale of warehouse (Note 3) 86,350 

    Total other 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.

    Required – 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.

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