Question

Flounder Corp. is a public company and has 100,000 common shares outstanding. In 2020, the company reported income from continuing operations before income tax of $2,547,400. Additional transactions not considered in the $2,547,400 are as follows: 1. In 2020, Flounder Corp. sold equipment for $131,600. The machine had originally cost $75,200 and had accumulated depreciation to date of $33,840. 2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $272,600 before tax. Assume that this transaction meets the criteria for discontinued operations. The loss on operation of the discontinued subsidiary was $84,600 before tax. The loss from disposal of the subsidiary was $188,000 before tax. 3. The sum of $488,800 was received as a result of a lawsuit for a breached 2017 contract. Before the decision, legal counsel was uncertain about the outcome of the suit and Flounder had not established a receivable. 4. In 2020, the company reviewed its accounts receivable and determined that $50,760 of accounts receivable that had been carried for years appeared unlikely to be collected. No allowance for doubtful accounts was previously set up. 5. An internal audit discovered that amortization of intangible assets was understated by $32,900 (net of tax) in a prior period. The amount was charged against retained earnings. Analyze the above information and prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Calculate earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 25% on all items, unless otherwise indicated.) (Round per share answers to 2 decimal places, e.g. 52.75. Disclose Discontinued operations tax information separately.)

Answer 1

Flounder Corp. Income Statement (Partial) For the Year Ended December 31, 2020
Income from continuing operations before income tax			3075680
Income tax			768920
Income from continuing operations			2306760
Discontinued operations
Loss from operation of discontinued subsidiary	84600
Less applicable income tax reduction (84600*25%)	21150	63450
Loss from disposal of subsidiary	188000
Less applicable income tax reduction (188000*25%)	47000	141000	204450
Net income			$2102310
Earnings per share:
Income from continuing operations			$23.07
Discontinued operations			$2.04
Net income			$21.03

Income from continuing operations before income tax:
As previously stated	2547400
Write-off of accounts receivable	(50760)
Gain on sale of equipment (131600-(75200-33840)	90240
Settlement of lawsuit	488800
Restated	3075680
Income tax expense: $3075680 X 25% = $768920