Iona Corporation Is in the Process of Preparing Its Financial

question 38

Essay

Iona Corporation is in the process of preparing its financial statements for the first quarter of 20X9 and has asked your advice as to how to report several items. These items include the following events which took place during the first quarter of 20X9 (assume all amounts are material):
1) Iona redeemed bonds with a carrying value of $4,000,000 at a cost of $3,760,000. This early extinguishment occurred because Iona wants to issue new debt at lower interest rates.
2) Iona uses the LIFO method for its inventories. On January 1, 20X9, inventories amounted to $10,000,000, while, on March 31, 20X9, inventories totaled $9,200,000. Iona expects to replace the liquidated inventory at the beginning of the second quarter at a cost of $1,000,000.
3) Iona changed its depreciation method on $4,000,000 of its delivery trucks from the declining balance method to the straight-line method. On January 1, 20X9, accumulated depreciation under the declining balance method was $2,800,000. Had the straight-line method been used, accumulated depreciation on January 1, 20X9, would have been $2,300,000. The remaining life of the trucks is two years.
4) Iona pays its top executives a bonus at year-end of 6 percent of operating income before bonus and income taxes. Operating income before bonus and income taxes for the three months ended March 31, 20X9, was $10,000,000. Iona estimates that its yearly operating income before bonus and income taxes will be $60,000,000.
5) Iona closes its manufacturing operations in July of each year in order to make its major annual repairs. Iona estimates that the cost of these repairs in 20X9 will be $1,000,000.
Required:
For each of the events numbered 1 through 5, indicate how that event should be reported on Iona's income statement for the three months ended March 31, 20X9, and the balance sheet accounts effects at March 31, 20X9. Ignore income taxes.

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Definitions:

Sensory Signals

Electrical or chemical messages that are transmitted through the nervous system, providing information from the environment to the brain for processing.

Non-REM Sleep

The sleep stages 1 through 3, characterized by non-rapid eye movement and differing depths of sleep.

Metabolic Rate

The rate at which an organism uses energy to support its basic life functions.

Growth Hormone

A hormone that stimulates growth, cell reproduction, and cell regeneration in humans and other animals.