Can you please help me answer this question?? Botticelli Inc. was organized in l
ID: 2470757 • Letter: C
Question
Can you please help me answer this question??
Botticelli Inc. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. Includes a $13,200 increase because of change in bad debt experience rate. Includes extraordinary gain of $33,800. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli Inc. therefore hired the auditing firm of Check & Double check Co. and has provided the following additional information. In early 2013, Botticelli Inc. changed its estimate from 2% to 1% on the amount of bad debt expense to be charged to operations. Bad debt expense for 2012, if a 1% rate had been used, would have been 513,200. The company therefore restated its net income for 2012. In 2015, the auditor discovered that the company had changed its method of inventory pricing from UFO to FIFO. The effect on the income statements for the previous years is as follows. In 2015, the auditor discovered that: The company incorrectly overstated the ending inventory (under both LIFO and FIFO) by $11,600 in 2014. A dispute developed in 2013 with the Internal Revenue Service over the deductibility of entertainment expenses. In 2012, the company was not permitted these deductions, but a tax settlement was reached in 2015 that allowed these expenses. As a result of the court's finding, tax expenses in 2015 were reduced by $54,000. Present comparative income statements for the years 2012 to 2015, starting with income before extraordinary items. (Ignore income tax considerations.)Explanation / Answer
Solution:
Comparative Income Statements:
* The income before extraordinary item in 2013 is 133,800 (167,600 - 33,800)
BOTTICELLI INC Comparative Income Statements For the Years 2012 through 2015 2012 2013 2014 2015 Income before extraordinary item 146,400 133,800* 205,600 276,100 Extraordinary gain 33,800 Net income (see below) 146,400 167,600 205,600 276,100