Question

PART A - Assignment Instructions: Sportswear, Inc. reported income from continuing operations before taxes during 2016 of $1,782,000. Below are additional transactions that were overlooked and have not been accounted for on either the Income Statement or Retained Earnings Statement. The company is located in Oklahoma City, Oklahoma, and has been in business since 2006. All of the following transactions are pre-tax.

                1. The company experienced an uninsured loss due to earthquake in the amount of $240,000.

                2. At the beginning of 2014, the company purchased equipment for $100,000, depreciating under the straight-line method. The equipment had a 10-year useful life, and a salvage value of $10,000. On January 1, 2016, it was discovered that the accountant had incorrectly recorded depreciation in the years 2014 and 2015, mistakenly using a 6-year useful life. Depreciation was correctly recorded for the year 2016.

                3. The company sold some securities that were held as part of a larger portfolio, resulting in a gain of $40,000.

                4. The company disposed of its lending division at a loss of $350,000. Assume this transaction meets the definition of a discontinued operation. The operating income from this division was $55,000 for the year.

                5. The company paid $30,000 of dividends for 2016.

                6. Common shares outstanding for the year were 200,000.

                7. The company’s tax rate is 38%.

(A)          Prepare a multiple-step income statement for the year 2016, starting with income from continuing operations before taxes. (NOTE: You only prepare the income statement for this one year).

Answer 1

Answlt SPORTSWEAR INC income Operations 1782000 from the continui before taxes 677160 6) Income taxes income from continuing operations 164840 Dºs continued operations; Income from discontinued S 3u10o operations less tay $ 20,900 loss on disposal less income tax 133000* - 217000 Total Shoes ide -182900 income from before extraordinary items. Tento 1599100 and cumulative effect of accounting change extraordinary lems less tax @ 38.1. - 148800

cumulative effect of less 7440 change in tax accounting 10 57740 Net Income 40000 Other - comprehensive from various income adjustments investments 1497740 Comprehensive Income * Income from discon Linued - operations operations ($55,000 less 38' Of $ 350,000) operations ** loss on disposal (1350,000 - 38% of of discontinued $350,000) *** PU as due to earth quake ( $200,000 - 38%. Of $ 240,000) **** Effect of change in depreciation on equipment. ($18,000 -38% of $10000) Original depreciation - $ 90,00 06 - $ 15000 rected = = deprecat0 $ 90000 10 $9000 For Two years $60,000 X 2 = $ 12,000