Question

Grouper Inc. reported income from continuing operations before taxes during 2017 of $791,900. Additional transactions occurring in 2017 but not considered in the $791,900 are as follows.

1.		The corporation experienced an uninsured flood loss in the amount of $91,900 during the year.
2.		At the beginning of 2015, the corporation purchased a machine for $81,000 (salvage value of $13,500) 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 $162,700 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $48,960 (the gain is nontaxable).
5.		The corporation disposed of its recreational division at a loss of $112,400 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 $59,080 and decrease 2016 income by $21,140 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 129,730 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) (Round earnings per share to 2 decimal places, e.g. 1.48 and all other answers to 0 decimal places, e.g. 5,275.)

Answer 1

GROUPER INC.
Income Statement
For the Year Ended December 31, 2017
Income from continuing operations before income tax		$ 845,590.00
Income tax		$ 219,555.00
Income from continuing operations		$ 626,035.00
Discontinued operations
Loss from disposal of recreational division	$ 112,400.00
Less: Applicable income tax reduction	$    33,720.00	$    78,680.00
Income before extraordinary item		$ 547,355.00
Extraordinary item:
Major casualty loss	$    91,900.00
Less: Applicable income tax reduction	$    27,570.00	$    64,330.00
Net Income		$ 483,025.00

Working Note

Income from continuing operations before income tax
As previously stated		$ 791,900.00
Loss on sale of securities		$ (62,300.00)
Gain on proceeds of life insurance policy ($162,700 – $48,960)		$ 113,740.00
Error in computation of depreciation
As computed ($81,000 ÷ 6)	$    13,500.00
Corrected (($81,000 – $13,500) ÷ 6)	$    11,250.00	$       2,250.00
As restated		$ 845,590.00

Computation of income tax:
Income from continuing operations before taxes		$ 845,590.00
Nontaxable income (gain on life insurance)		$ 113,740.00
Taxable Income		$ 731,850.00
Tax Rate		30%
Income tax expense		$ 219,555.00