Contents
Introduction
Ivan Calderon Corp. is a company that sells various products and services to its customers. The company has been in operation for several years and has a good reputation in the market. However, in the year 2014, the company faced some challenges and difficulties in its accounting and reporting processes. Some errors and adjustments were made to the financial statements of the company, which affected its net income, retained earnings, and earnings per share. In this article, we will analyze the information related to Ivan Calderon Corp. for the year 2014 and discuss the implications of the errors and adjustments on the company’s performance and financial position.
Net Sales and Cost of Goods Sold
According to Chegg.com, the net sales of Ivan Calderon Corp. for the year 2014 were $1,300,000. This means that the company generated this amount of revenue from selling its products and services to its customers. The cost of goods sold of the company for the same year was $780,000. This means that the company incurred this amount of expenses to produce or purchase the goods that it sold to its customers. The difference between the net sales and the cost of goods sold is called the gross profit, which measures the profitability of the company’s core operations. The gross profit of Ivan Calderon Corp. for the year 2014 was $520,000 ($1,300,000 – $780,000), which indicates that the company had a healthy margin on its sales.
Operating Expenses
The operating expenses of Ivan Calderon Corp. for the year 2014 consisted of two categories: selling expenses and administrative expenses. The selling expenses of the company were $65,000, which included the costs of advertising, marketing, distribution, and customer service. The administrative expenses of the company were $48,000, which included the costs of management, accounting, legal, and office operations. The total operating expenses of the company for the year 2014 were $113,000 ($65,000 + $48,000), which represents the costs of running and maintaining the business activities of the company.
The difference between the gross profit and the total operating expenses is called the income from operations, which measures the profitability of the company’s normal business activities before considering any other revenues or expenses. The income from operations of Ivan Calderon Corp. for the year 2014 was $407,000 ($520,000 – $113,000), which indicates that the company had a good control over its operating costs and was able to generate a substantial amount of income from its operations.
Other Revenues and Expenses
Apart from its operating activities, Ivan Calderon Corp. also had some other revenues and expenses in the year 2014 that affected its net income. These include:
- Dividend revenue: This is the income that the company received from investing in other companies’ stocks that paid dividends. The dividend revenue of Ivan Calderon Corp. for the year 2014 was $20,000.
- Interest revenue: This is the income that the company received from lending money or investing in debt securities that paid interest. The interest revenue of Ivan Calderon Corp. for the year 2014 was $7,000.
- Casualty loss: This is an unexpected loss that results from an accident or a natural disaster that damages or destroys some of the company’s assets. The casualty loss of Ivan Calderon Corp. for the year 2014 was $50,000.
- Write-off of inventory due to obsolescence: This is an expense that occurs when some of the company’s inventory becomes outdated or unsalable due to changes in technology, customer preferences, or market conditions. The write-off of inventory due to obsolescence of Ivan Calderon Corp. for the year 2014 was $80,000.
The net effect of these other revenues and expenses on Ivan Calderon Corp.’s net income for the year 2014 was a decrease of $103,000 ($27,000 – $130,000).
Income Tax Expense
The income tax expense is an expense that represents the amount of taxes that the company has to pay to the government based on its taxable income. The taxable income is the amount of income that the company reports to the tax authorities after deducting all allowable deductions and exemptions. The effective tax rate is the percentage of taxable income that the company has to pay as taxes. According to Chegg.com1, the effective tax rate of Ivan Calderon Corp. for the year 2014 was 20%. This means that the company had to pay 20% of its taxable income as taxes to the government. The income tax expense of Ivan Calderon Corp. for the year 2014 was $60,800, which is calculated as 20% of its income before income tax of $304,000 ($407,000 – $103,000).
The net income is the amount of income that the company earns after deducting all expenses, including income tax expense, from its revenues. The net income of Ivan Calderon Corp. for the year 2014 was $243,200, which is calculated as its income before income tax of $304,000 minus its income tax expense of $60,800.
The earnings per share (EPS) is the amount of net income that the company earns per share of its common stock. The EPS of Ivan Calderon Corp. for the year 2014 was $4.05, which is calculated as its net income of $243,200 divided by its number of common shares outstanding of 60,000.
Errors and Adjustments
As mentioned earlier, Ivan Calderon Corp. made some errors and adjustments in its accounting and reporting processes in the year 2014. These include:
- Depreciation expense omitted by accident in 2019: This is an error that occurred when the company failed to record the depreciation expense for one of its assets in the year 2019. This resulted in an understatement of the depreciation expense and an overstatement of the net income and the retained earnings for that year. To correct this error, the company had to record the depreciation expense that was omitted in 2019 in the year 2014. This resulted in an increase in the depreciation expense and a decrease in the net income and the retained earnings for the year 2014 by $55,000.
- Selling expenses understatement in 2020: This is an error that occurred when the company failed to record some of its selling expenses in the year 2020. This resulted in an understatement of the selling expenses and an overstatement of the net income and the retained earnings for that year. To correct this error, the company had to record the selling expenses that were understated in 2020 in the year 2014. This resulted in an increase in the selling expenses and a decrease in the net income and the retained earnings for the year 2014 by $15,000.
The impact of these errors and adjustments on Ivan Calderon Corp.’s financial statements for the year 2014 can be summarized as follows:
| Item | Original Amount | Adjusted Amount | Change |
| Depreciation expense | $0 | $55,000 | +$55,000 |
| Selling expenses | $65,000 | $80,000 | +$15,000 |
| Total operating expenses | $113,000 | $133,000 | +$20,000 |
| Income from operations | $407,000 | $387,000 | -$20,000 |
| Income before income tax | $304,000 | $284,000 | -$20,000 |
| Income tax expense | $60,800 | $56,800 | -$4,000 |
| Net income | $243,200 | $227,200 | -$16,000 |
| Earnings per share | $4.05 | $3.79 | -$0.26 |
| Retained earnings at December 31, 2019 | $980,000 | $910,000 | -$70,000 |
| Retained earnings at December 31, 2020 | $1,178,200 | $1,092,200 | -$86,000 |
Conclusion
In this article, we have analyzed the information related to Ivan Calderon Corp. for the year 2014 and discussed the implications of the errors and adjustments on the company’s performance and financial position. We have seen that the company had a good level of sales and profitability from its core operations, but also faced some challenges and difficulties from its other revenues and expenses. We have also seen that the company made some errors and adjustments in its accounting and reporting processes, which affected its net income, retained earnings, and earnings per share. These errors and adjustments should be avoided or corrected as soon as possible, as they can have negative consequences on the company’s credibility, reputation, and compliance with accounting standards and regulations.
