Question

Sage Hill Inc reported income from continuing operations before taxes during 2017 of $2,300,000. Additional transactions occurring in 2017 but not considered in the $2,300,000 are as follows. 1. Again of $107.000 (pretax) as a result of selling securities from its investment portfolio. 2. A $24,000 loss before taxes as a result of operating the discontinued clothing division during 2017 3. A loss of $66,000 before taxes as a result of disposing of its clothing division. Assume that this transaction meets the criteria for discontinued operations. 4. An uninsured $132,000 loss due to a fire. 5. At the beginning of 2015, the corporation purchased a machine for $210,000 (salvage value of $30,000) that had a useful life of 10 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base. 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 $50,000 and decrease 2016 income by $24,000 before taxes. The FIFO method has been used for 2017 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 450,000 shares. (Assume a tax rate of 30% on all items.) (Round earnings per share to 2 decimal places, eg. 1.48 and all other answers to O decimal places, eg. 5,275.)

Answer 1

WN-1

Income from operations before tax

Particulars	Amount($)
1.Income from cotinued operations before tax	2300000
2.Gain from sale of securities	107000
3.Loss due to fire	(132000)
4.Depreciation**($21000-($3000*3))	(12000)
5.Effect of change of inventory policy*($50000-$24000)	26000
6.Total (1 to 5)	2289000

*Since the eaarlier period figures are not given,it is assumed that the earliest period practicable to make effect of change in accounting policy would be 2017.

**It isassumed that the previous year practicable as 2017, in the absence of figures of previous years.

In actual sense the change in accounting policy and errors both require us to make necessary changes retrospectively, which means to make changes as if the policies are there from the start period and as if error has been immediately recognised and made necessary changes.

WN-2

Tax Expense

Particulars	Amount($)
1.Income before taxes (WN-1(6))	2289000
2.Tax benefit due to excess depreciation($6000*30%)	1800
3.Tax benefit on loss from Discontinued Operations ($24000*30%)	(7200)
4.Tax benefit on disposal from Discontinued Operations ($66000*30%)	(19800)
3.Tax Expense([1+2+3+4]*30%)	679140

SAGE HILL INC Income Statement (partial)for the year ended 31 December,2017

Income from Continuing Operations before Income tax(WN-1)	$2289000
Income Tax (WN-2)	$679140
Income from Continuing Operations	$1609860

Dicontinued Operations

Loss on opeartion of discontinued Operations net of tax ($24000*70%)	$16800
Loss on disposal of discontinued Operations net of tax ($66000*70%)	$46200
Net Income($1609860-$16800-$46200)	$1546860

Per Share of Common stock of 450000 shares

Continued Operations($1609860/450000)	$3.57
Discontinued Operations($63000/450000)	($0.14)
Earnings per share ($1546860/450000)	$3.43