Question

Lance Corporation had income from continuing operations of $900,000 (after taxes) in 2019. In addition, the following information, which has not been considered, is as follows. 1. In 2019, Lance adopted the double-declining balance method of depreciating equipment. Prior to 2019, Vance had used the straight-line method. The change decreases income for 2019 by $60,000 (pre-tax) and the cumulative effect of the change on prior years' income was a $250,000 (pre-tax) decrease. 2. A machine was sold for $240,000 cash during the year at a time when its book value was $160,000. (Depreciation has been proper- ly recorded.) The company often sells machinery of this type. 3. Lance decided to discontinue its stereo division in 2019. During the current year, the loss on the disposal of the segment of the business was $180,000 less applicable taxes.

-Present in good form the income statement of Lance Corporation for 2019 starting with "income from continuing operations." Assume that Lance's tax rate is 40% and 100,000 shares of common stock were outstanding during the year.

Answer 1

Prepare the partial income statement as follows

LC Inc
Income Statement (Partial)
For the Year Ended December 31, 2019
Income from continuing operations - adjusted	$912,000
Discontinued operations:
Deduct: Loss on disposal of business, net of tax $180,000 × (1− 40%)	($108,000)
Income before cumulative effect of accounting changes	$804,000
Deduct: Cumulative effect of change in accounting principle, net of tax $250,000 × (1− 40%)	($150,000)
Net income	$654,000
Per share of common stock
Income from continuing operations ($912,000 ÷ 100,000)	$9.12
Discontinued operations, net of tax ($108,000 ÷ 100,000)	($1.08)
Income before cumulative effect of accounting changes ($804,000 ÷ 100,000)	$8.04
Change in accounting principle, net of tax ($150,000 ÷ 100,000)	($1.50)
Net income ($654,000 ÷ 100,000)	$6.54

Notes: Compute adjusted income from continuing operations as follows

Particulars	Amount
Unadjusted income from continuing operations	$900,000
Add: Gain on sale of machinery ($240,000 − $160,000) × (1− 40%)	$48,000
Deduct: Current effect of change in accounting principle $60,000 × (1− 40%)	($36,000)
Adjusted income from continuing operations	$912,000