Question

Your answer is partially correct. Try again. Skysong Corp. has 149,550 shares of common stock outstanding. In 2020, the company reports income from continuing operations before income tax of $1,220,400. Additional transactions not considered in the $1,220,400 are as follows. 1. 2. In 2020, Skysong Corp. sold equipment for $37,000. The machine had originally cost $84,800 and had accumulated depreciation of $32,200. The gain or loss is considered non-recurring. The company discontinued operations of one of its subsidiaries during the current year at a loss of $197,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $94,300 before taxes; the loss from disposal of the subsidiary was $102,700 before taxes. An internal audit discovered that amortization of intangible assets was understated by $36,000 (net of tax) in a prior period. The amount was charged against retained earnings. The company recorded a non-recurring gain of $126,200 on the condemnation of some of its property (included in the $1,220,400). 3. 4. Analyze the above information and prepare an income statement for the year 2020, 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 19% on all items, unless otherwise indicated.) (Round earnings per share to 2 decimal places, e.g. 1.47.)

Answer 1

SKYSONG CORP.

Income Statement

December 31, 2020

Income from Continuing Operations including extraordinary items		$1,204,800
Less: Tax Expense	$1,204,800*19%	$228,912
Income from continuing operations after tax		$975,488
Income from discontinued Operations:
Loss from Operations	$94,300
Tax Expense @ 19%	$17,917
Loss after Tax	$76,383
Loss from sale of subsidiary	$102,700
Tax Expense @ 19%	$19,513
Loss from subsidiary after tax	$83,187
Income from discontinued operations after tax	$76,383+$83,187	($159,570)
Total income from operations		$815,918
Earnings per Share	$815,918/149,550	$5.46

Note: Amortisation expense understated in the previous year should not be presented in the current year income statement and hence not taken.

Non recurring gain should be presented as an extraordinary item in the income statement.

Calculation:

Income from Continuing Operations before tax:

Income Given before adjustments	$1,220,400
Less: Loss on sale of Equipment ($37,000 -$52,600) Cost of Equipment - $ 84,800 Accumulated depreciation - $32,200 Book Value - ($84,800-$32,200) - $52,600 Sale value of equipment - $37,000	$15,600
Less: Non recurring gain	$126,200
Income from continuing operations before tax	$1,078,600
Add: Extra Ordinary item	$126,200
iNCOME FROM CONTINUING OPERATIONS BEFORE TAX	$1,204,800