In: Accounting
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.)
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.