Question

*Problem 4-04 a-b (Part Level Submission) Flounder Inc. reported income from continuing operations before tax of $2,506,000 during 2020. Additional transactions occurring in 2020 but not included in the $2,506,000 were as follows: 1. The corporation experienced an insured flood loss of $112,000 during the year. 2. At the beginning of 2018, the corporation purchased a machine for $63,600 (residual value of $13,800) that has a useful life of six years. The bookkeeper used straight-line depreciation for 2018, 2019, and 2020, but failed to deduct the residual value in calculating the depreciable amount. 3. The sale of FV-NI investments resulted in a loss of $149,800. 4. When its president died, the corporation gained $140,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $64,400. (the gain is non-taxable.) 5. The corporation disposed of its recreational division at a loss of $161,000 before tax. Assume that this transaction meets the criteria for accounting treatment as 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 2018 income by $84,000 and decrease 2019 income by $28,000 before taxes. The FIFO method has been used for 2020. *(a) Your answer is partially correct. Try again. Prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Calculate earnings per share as required under IFRS. There were 172,655 common shares outstanding during the year. (Assume a tax rate of 30% on all items, unless they are noted as being non-taxable.) (Round answers to O decimal places, e.g. 5275. Round EPS answers to 2 decimal places, e.g. 52.75. )

Can you explain how you found the income from continuing operations before income tax?

Answer 1

Please find below table useful to compute desired results: -

2506000 112000 63600 149800 140000 161000 84000 172655 =30/100 А 1 Reported Income from continuing Operations before tax 2 Insured flood loss 3 Purchased Machine, Residual Value and useful life 4 Loss on sale of investments 5 Gain from insurance and its surrender value 6 Loss on recreational division 7 Prior increase in income and decrease in income 8 Common shares outstanding 9 Tax rate 10 11 Income from continuing operations before taxes 12 Loss on sale of securities 13 Gain on proceeds from the insurance policy 14 Uninsured flood loss 15 Excess depreciation charged due to error in computation 16 Income from continuing operations before Income tax(corrected) 17 Applicable Income tax reduction 18 Non taxable (Gain on proceeds from the insurance policy) 19 Taxable income 20 Income tax expense 21 Income from continuing operations EPS 22 Discountinued Operations, EPS 23 Net Income, EPS C D E G H Income statement (partial) for the year ended Dec. 31 Particulars Amount Amount 13800 6 Income from continuing operations before tax =B16 Income tax expense =B20 64400 Income from continuing operations =H3-H4 Discountinued Operations 28000 Loss from disposal of recreational division =B6 Income tax reduction =B17 =G7-G8 | Net Income loss =H5-H8 Earnings per share Income from continuing Operations =B21 Discountinued Operations, net of tax =B22 Net income =H9/B8 =B1 =B4 =B5-C5 =B2 =B3/D3-B3-C3)/D3 =B11-B12+B13-B14+B15 =B6*B9 =B5-C5 =B16-B18 =B19*B9 =(B16-B20)/B8 =B6-B17)/B8 =B21-B22

End results would be as follows: -

1 Reported Income from continuing Operations before tax 2 Insured flood loss 3 Purchased Machine, Residual Value and useful life 4 Loss on sale of investments 5 Gain from insurance and its surrender value 6 Loss on recreational division 7 Prior increase in income and decrease in income 8 Common shares outstanding 9 Tax rate 10 11 Income from continuing operations before taxes 12 Loss on sale of securities 13 Gain on proceeds from the insurance policy 14 Uninsured flood loss 15 Excess depreciation charged due to error in computation 16 Income from continuing operations before Income tax(corrected) 17 Applicable Income tax reduction 18 Non taxable (Gain on proceeds from the insurance policy) 19 Taxable income 20 Income tax expense 21 Income from continuing operations EPS 22 Discountinued Operations, EPS 23 Net Income, EPS B C D E G H 2.506,000 Income statement (partial) for the year ended Dec. 31 112.000 Particulars Amount Amount 63,600 13.8006 Income from continuing operations before tax | 2.322.100 149.800 Income tax expense 673.950 140,000 64.400 Income from continuing operations 1,648,150 161.000 Discountinued Operations 84.000 28.000 Loss from disposal of recreational division 161,000 172,655 Income tax reduction 48,300 112.700 30% Net Income loss 1,535,450 Earnings per share 2.506,000 Income from continuing Operations 9.55 149.800 Discountinued Operations, net of tax 0.65 75,600 Net income 8.89 112.000 2.300 / 2,322,100 48.300 75,600 2.246,500 673.950 9.55 0.65 8.89