In: Accounting
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.
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 |