Question

Windsor Inc. reported income from continuing operations before taxes during 2017 of $797,900. Additional transactions occurring in 2017 but not considered in the $797,900 are as follows.

1.		The corporation experienced an uninsured flood loss in the amount of $93,400 during the year.
2.		At the beginning of 2015, the corporation purchased a machine for $75,600 (salvage value of $12,600) 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 $60,800 (pretax).
4.		When its president died, the corporation realized $162,100 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $47,440 (the gain is nontaxable).
5.		The corporation disposed of its recreational division at a loss of $105,080 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 $55,160 and decrease 2016 income by $19,110 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 119,240 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

Answer 1

WINDSOR INC.
Income Statement (Partial)
For the Year Ended Dec 31
Income from Continuing Operations Before Income Tax		853,860.00
Income Tax		(221,760.00)
Income from Continuing Operations		632,100.00
Discontinued Operations:
Loss from disposal of Recreational Division	(105,080.00)
Applicable Income Tax Reduction	31,524.00	(73,556.00)
Income Before Extraordinary Item		558,544.00
Extraordinary item:
Uninsured Flood Loss	(93,400.00)
Applicable Income Tax Reduction	28,020.00	(65,380.00)
Net Income		493,164.00
Per Share of Common Stock:
Income from Continuing Opeartions - $632,100 / 119,240 Shares	5.30
Discontinued Opeartions - ($73,556) / 119,240 Shares	(0.62)
Income Before Extraordinary Item	4.68
Extraordinary item - ($65,380) / 119,240 Shares	(0.55)
Net Income - $493,164 / 119,240 Shares	4.14
Computation of Income from Continuing Operations Before Income Tax:
Unadjusted Income from Continuing Operations Before Tax		797,900.00
Loss on Sale of Securities		(60,800.00)
Gains on Proceeds of Life Insurance Policies - $162,100 - $47,440		114,660.00
Errors in Computation of depreciation
As Computed - $75,600 / 6 Years	12,600.00
Corrected - ($75,600 - $12,600) / 6 Years	10,500.00	2,100.00
Income from Continuing Operations Before Income Tax		853,860.00
Computation of I Tax
Income from Continuing Operations Before Income Tax	853,860.00
Non-Taxable Income	(114,660.00)
Taxable Income	739,200.00
Income Tax Expense - 30% X $739,200	221,760.00