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in terms of the objectives of financial accounting discuss the usefulness of the var 621809

Comprehensive problem

Laidig Industries has prepared the following unadjusted trial balance as of December 31, 2012:

Debit

Credit

Cash

$1 10,000

Accounts receivable

340,000

Allowance for doubtful accounts

$50,000

Inventory (balance 1/1/12)

467,000

Prepaid insurance

60,000

Fixed assets

850,000

Accumulated depreciation

287,000

Accounts payable

200,000

Dividends payable

45,000

Bonds payable

500,000

Common stock

100,000

Retained earnings

673,000

Sales

1,256,000

Gain on sale of land

76,000

Extraordinary loss

35,000

Income effect due to flange in accounting principle

60,000

Purchases

750,000

Administrative expenses

100,000

Selling expenses

255,000

Interest expense

25,000

Dividends

135,000

ADDITIONAL INFORMATION:

  1. A physical count of inventory on December 31, 2012, indicated that the company had $480,000 of inventory on hand.
  2. An aging of accounts receivable indicates that $75,000 is uncollectible.
  3. The company uses straight-line depreciation. The assets have a ten-year life and zero salvage value.
  4. The company used a third of the remaining insurance policy during 2012.
  5. The company pays interest for its bond payable on December 31 of every year. The coupon rate and the effective rate are both 10 percent per year.
  6. The company”s tax rate is 35 percent. All income tax charges are recorded at the end of the year.
  7. 200,000 shares of common stock were outstanding during 2012.

REQUIRED:

Prepare the following:

a. The necessary adjusting and closing entries on December 31, 2012.

b. An income statement including recommended earnings-per-share disclosures.

c. A reconciliation of retained earnings.

d. In terms of the objectives of financial accounting, discuss the usefulness of the various measures of income included on the statement.

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