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Acct 500 Case Soultion

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According to section 225-10-S99 of the FASB Codification, the following income statement presentation is relevant to this case: Net sales, which is equal to gross sales less discounts, returns and allowances, should be stated first. Sales of tangible products (children’s clothing) and revenues from services (spa services) should be stated separately from one another on the income statement. Gross profit, Cost of Sales, according to the case, “includes expenses incurred to acquire and produce inventory for sale, such as product costs, freight-in and import costs, and direct labor costs for Sassy Spa employees.” Cost of tangible goods sold (children’s clothing) and costs services (Sassy Spa direct labor costs) should be stated separately from one another on the income statement.
Depreciation
Depreciation expense in this case is excluded from Cost of Sales. Section 225-10-S99 allows for a separation of lines between Cost of Sales and depreciation. The Codification gives the following example as an acceptable label:
Cost of goods sold (exclusive of depreciation shown separately below)
However, in order to avoid a misunderstanding of cash flows, a separate income subtotal is not permitted on the income statement. The following example is given as an unacceptable subtotal label: Income before depreciation
Extraordinary Items According to section 225-20-45, extraordinary items are distinguished by their “unusual nature and by the infrequency of their occurrence” and are listed on the income statement after the income tax expense. Both the Gain on Sale of Corporate Headquarters and the Class Action Settlement fall under these criteria. However, the Codification gives a few examples of certain gains and losses such as the sale of abandoned property that should not be included under extraordinary items due to their recurrence “as a consequence of customary and…...

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