Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2014.\n(000 omitted)\nNet sales revenue $640,000
Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2014.
\r\n(000 omitted)
\r\nNet sales revenue $640,000
\r\nCosts and expenses
\r\nCost of goods sold $500,000
\r\nSelling, general, and administrative expenses 66,000
\r\nOther, net 17,000 583,000
\r\nIncome before income tax 57,000
\r\nIncome tax 19,400
\r\nNet income 37,600
\r\nRetained earnings at beginning of period, as previously reported 141,000
\r\nAdjustment required for correction of error (7,000)
\r\nRetained earnings at beginning of period, as restated 134,000
\r\nDividends on common stock (12,200)
\r\nRetained earnings at end of period $159,400
\r\nAdditional facts are as follows.
\r\n1. “Selling, general, and administrative expenses” for 2014 included a charge of $8,500,000 that was usual but infrequently occurring.
\r\n2. “Other, net” for 2014 included an extraordinary item (charge) of $6,000,000. If the extraordinary item (charge) had not occurred, income taxes for 2014 would have been $21,400,000 instead of
\r\n$19,400,000.
\r\n3. “Adjustment required for correction of an error” was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made).
\r\n4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements.
\r\nInstructions
\r\nDetermine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)