Bonita Corp. has 150,240 shares of common stock outstanding. In 2017, the company reports income from...

Bonita Corp. has 150,240 shares of common stock outstanding. In 2017, the company reports income from continuing operations before income tax of $1,210,400. Additional transactions not considered in the $1,210,400 are as follows.

1.		In 2017, Bonita Corp. sold equipment for $38,300. The machine had originally cost $83,600 and had accumulated depreciation of $31,900. The gain or loss is considered non-recurring.
2.		The company discontinued operations of one of its subsidiaries during the current year at a loss of $191,900 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $90,100 before taxes; the loss from disposal of the subsidiary was $101,800 before taxes.
3.		An internal audit discovered that amortization of intangible assets was understated by $38,400 (net of tax) in a prior period. The amount was charged against retained earnings.
4.		The company had a non-recurring gain of $125,400 on the condemnation of some of its property (included in the $1,210,400).

Analyze the above information and prepare an income statement for the year 2017, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.) (Round earnings per share to 2 decimal places, e.g. 1.47.)

Expert Solution

Income statement for the year 2017 is shown as follows:- (Amounts in $)

BONITA CORP.
Income Statement (Partial)
December 31, 2017
Income from continuing operations before income tax (1,210,400-Loss on sale of equipment 13,400) (See Note 1)			1,197,000
Income Tax (1,197,000*38%)			454,860
Income from Continuing Operations (1,197,000-454,860)			742,140
Discontinued Operations
Loss from Operations of Discontinued Subsidiary	90,100
Less: Applicable Income Tax Reduction (90,100*38%)	34,238	55,862
Loss from Disposal of Subsidiary	101,800
Less: Applicable Income Tax Reduction (101,800*38%)	38,684	63,116
Loss from discontinued operations (net of tax) (55,862+63,116)			118,978
Income before extraordinary item (742,140-118,978)			623,162
Extraordinary Item:
Gain on Condemnation			125,400
Less: Applicable tax (125,400*38%)			47,652
Net Income (623,162+125,400-47,652)			700,910
Per Share of Common Stock:
Income from continuing operations (742,140/150,240)		4.94
Loss from discontinued operations (net of tax) (118,978/150,240 shares)		(0.79)
Income before extraordinary item (623,162/150,240)		4.15
Extraordinary Gain (net of tax) [(125,400-47,652)/150,240]		0.52
Net Income (700,910/150,240)		4.67

Notes:-

1) Net Book Value of Equipment sold = Cost - Accumulated Depreciation

= $83,600 - $31,900 = $51,700

Loss on sale of equipment = Net book value - Sale value

= $51,700 - $38,300 = $13,400

This loss on sale of equipment has not been adjusted from Income from continuing operations before income tax of $1,210,400. Therefore 13,400 is deducted from $1,210,400 to calculate correct Income from continuing operations before income tax.

ekkarill92 answered 8 months ago

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