Reference no: EM132818522

Assume that the Special Contract Division of Staples experienced the following transactions during the year ended December 31, 2020:

a. Suppose the division provided copy services to a customer for the discounted price of $250,000. Under normal conditions, Staples would have provided these services for $280,000. Other revenues totalled $50,000.

b. Salaries cost the division $20,000 to provide these services. The division had to pay employees overtime. Ordinarily, the salary cost for these services would have been $18,000.

c. Other expenses totalled $240,000. Income tax expense was 30% of income before tax. d. Staples has two operating divisions. Each division is accounted for separately to indicate how well each is performing. At year-end, Staples combines the statements of divisions to show results for Staples as a whole.

e. Inflation affects the amounts that Staples must pay for copy machines. To show the effects of inflation, net income would drop by $3,000.

f. If Staples were to go out of business, the sale of its assets would bring in $150,000 in
cash.

Requirements

Problem 1. Prepare the Special Contracts Division's income statement for the year ended December 31, 2020.

Problem 2. Identify the accounting concepts, assumptions, or principles used in accounting for the items described in a through f. State how you have applied the concept, assumption, or principle in preparing the Division's income statement.