Question

Faldo Corp. is a public company and has 100,000 common shares outstanding. In 2020, the company reported income from continuing operations before income tax of $2,710,000. Additional transactions not considered in the $2,710,000 are as follows:

1.		In 2020, Faldo Corp. sold equipment for $140,000. The machine had originally cost $80,000 and had accumulated depreciation to date of $36,000.
2.		The company discontinued operations of one of its subsidiaries during the current year at a loss of $290,000 before tax. Assume that this transaction meets the criteria for discontinued operations. The loss on operation of the discontinued subsidiary was $90,000 before tax. The loss from disposal of the subsidiary was $200,000 before tax.
3.		The sum of $520,000 was received as a result of a lawsuit for a breached 2017 contract. Before the decision, legal counsel was uncertain about the outcome of the suit and Faldo had not established a receivable.
4.		In 2020, the company reviewed its accounts receivable and determined that $54,000 of accounts receivable that had been carried for years appeared unlikely to be collected. No allowance for doubtful accounts was previously set up.
5.		An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings.

Analyze the above information and prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Calculate earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 25% on all items, unless otherwise indicated.) (Round per share answers to 2 decimal places, e.g. 52.75. Disclose Discontinued operations tax information separately.)

Answer 1

*)Answer

Faldo Corp. Income Statement for the year ended Deccember 31, 2020
Income from continuing operations before income tax			32,72,000
Income tax			8,18,000
Income from continuing operations			24,54,000
Discontinued operations
Loss from operation of discontinued subsidiary	90,000
(-) applicable income tax reduction	22,500
		67,500
Loss from disposal of subsidiary	2,00,000
(-) applicable income tax reduction	50,000
		1,50,000	2,17,500
Net income			22,36,500

Earnings per share
Income from continuing operations (2454000/100000)	24.54
Discontinued operations (217500/100000)	-2.18
Net income	22.36

*Income from continuing operations before income tax:
As previously stated		$2,710,000
Write-off of accounts receivable		(54,000)
Gain on sale of equipment		96,000
Settlement of lawsuit		520,000
Restated		$3,272,000
**Income tax expense: $3,272,000 X .25 = $818,000