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pronghorn Inc. reported income from continuing operations before taxes during 2017 of $790,900. Additional transactions occurring...

pronghorn Inc. reported income from continuing operations before taxes during 2017 of $790,900. Additional transactions occurring in 2017 but not considered in the $790,900 are as follows. 1. The corporation experienced an uninsured flood loss in the amount of $98,500 during the year. 2. At the beginning of 2015, the corporation purchased a machine for $73,800 (salvage value of $12,300) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base. 3. Sale of securities held as a part of its portfolio resulted in a loss of $62,300 (pretax). 4. When its president died, the corporation realized $159,800 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $43,910 (the gain is nontaxable). 5. The corporation disposed of its recreational division at a loss of $106,680 before taxes. Assume that this transaction meets the criteria for discontinued operations. 6. The corporation decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2015 income by $57,320 and decrease 2016 income by $21,450 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%. Prepare an income statement for the year 2017 starting with income from continuing operations before taxes.

Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 128,280 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.

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Expert Solution

Pronghorn Inc.
Income Statement (Partial)
For the year Dec. 31, 2017
Income from continuing operations before income tax 846540
Income tax -$219,195
Income from continuing operations $627,345
Discontinued operations
Loss from disposal of recreational division $106,680
Less: Applicable income tax reduction ($106,680 x 30%) -$32,004 -$74,676
Income before extraordinary item $552,669
Extraordinary item:
Major casualty loss 98500
Less: Applicable income tax reduction ($98500 x 30%) -29550 -$68,950
Net income $483,719
Per share of common stock:
Income from continuing operations = $627,345/128,280 $4.89
Discontinued operations, net of tax = 74676/128280 -$0.58
Income before extraordinary items $4.31
Extraordinary item, net of tax ($68,950 / 128,280 shares) -$0.54
Net Income ($483,719/128280) $3.77
a)Computation of income from cont. operations before taxes:
As previously stated $790,900
Loss on sale of securities -$62,300
Gain on proceeds of life insurance policy($159,800 - $43910) $115,890
Error in computation of Depreciation
As computed ($73,800/6) $12,300
Corrected ($73,800 - $12300)/6 -$10,250 $2,050
As Restated $846,540
b)Computation of income tax
Income from continuing operations before income tax $846,540
Non taxable Income (Gain on life insurance) -$115,890
Taxable Income $730,650
Tax Rate x 30%
Income Tax $219,195
No adjustment is needed for Inventory method change its applicable in year 2017

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