Question

Whispering Inc. reported income from continuing operations before taxes during 2017 of $807,900. Additional transactions occurring in 2017 but not considered in the $807,900 are as follows. 1. The corporation experienced an uninsured flood loss in the amount of $92,700 during the year. 2. At the beginning of 2015, the corporation purchased a machine for $57,600 (salvage value of $9,600) 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 $64,300 (pretax). 4. When its president died, the corporation realized $136,500 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $43,150 (the gain is nontaxable). 5. The corporation disposed of its recreational division at a loss of $109,090 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 $63,100 and decrease 2016 income by $20,980 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 126,910 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) (Round earnings per share to 2 decimal places, e.g. 1.48 and all other answers to 0 decimal places, e.g. 5,275.)

Answer 1

Solution-

Particulars	Amount $
Reported income from continuing operations before tax	807900
less- Insured flood loss	92700
add- additional depreciation charge (Note 1)	4800
less- Sale of securities resulting loss	64300
less- Loss on disposal of Recreational division	109090
add- Increase income due to inventory valuation(63100-20980)	42120
Adjusted income before taxes	588730
less - Tax @30%	176619
income after tax	412111
add- gain on insurance policy (non-taxable)(136500-43150)	93350
Net Income for the year ended 2017	505461

WORKING NOTES-
1)Depreciation actually charged(without salvage) 57600/6= 9600/ year
for three years 2015,16,17 = 9600*3= 28800
Depreciation to be charged for 3 years = 57600-9600/6 = 8000 /year
three years =8000*3 =24000
Additional depreciation charged= 28800-24000
= 4800


Calculation Of EPS
Net Income for the year 2017- 505461
Total number of shares- 126910
Eps = net income / total shares = 505461/126910
=3.98 Answer