1. SOLUTIONS TO CASES CASE 5-1
Ahmad Babtein

2. JOHN AMOS CORPORATION
INCOME STATEMENT
Sales $850,000
Dividends ,300
Gain on recovery of insurance proceeds from
earthquake loss (extraordinary) ,500
920,800
Less:
Selling expenses $101,100
Cost of good sold ,000
Advertising expense ,700
Loss on obsolescence of inventories ,000
Loss on discontinued operations ,600
Administrative expense ,400
Income before income tax ,000
Income tax ,000
Net income $ 84,000

3. The deficiencies of John Amos Corporation income statement are as follows:
1. The heading is inappropriate. The heading should include the name of the company and the period of time for which the income statement is presented. 2. Gain on recovery of insurance proceeds should be classified as an extraordinary item in a separate section of the income statement. 3. Cost of goods sold is usually listed as the first expense, followed by selling, administrative, and other expenses. 4. Advertising expense is a selling expense and should usually be classified as such, unless this expense is unusually different from previous periods.

4. The deficiencies of John Amos Corporation income statement are as follows:
5. Loss on obsolescence of inventories might be classified as an unusual item and separately disclosed if it is unusual or infrequent but not both. 6. Loss on discontinued operations requires a separate classification after income from continuing operations and before presentation of income before extraordinary items. 7. Intraperiod income tax allocation is required to relate income tax expense to income from continuing operations, loss on discontinued operations, and the extraordinary item. 8. Per share data is a required presentation for income from continuing operations, discontinued operations, income before extraordinary item, extraordinary item, and net income.

5. Thank you