Question

STANCA RO VİEW PRINTER VERSO BAC actice Problem 4-1 etiock Inc. reported income from continuing operations before taxes during 2017 of $2,225,000. Additional transactions occurring in 2017 but not considered in the $2,225,000 are as follows . A gain of $111,000 (pretax) as a result of selling securities from its investment portfolio A $15,000 loss before taxes as a result of operating the discontinued clothing division during 2017 4. An uninsured $138,000 loss due to a fire. S. At the beginning of 2015, the corporation purchased a machine for $210,000 (salvage value of $40,000) that had a useful life of 10 years. The bookkeeper used straight-ine depreciation for 3. A loss of $72,000 before taxes as a result of disposing of its clothing division. Assume that this transaction meets the criteria for discontinued operations. 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base 6 The corporation decided to change its method ot inventory pricing from average-cout to the FIrO method. The effect of this change on prior years is to increase 2015 income by s60,000 and decrease 2016 income by $26,000 before taxes. The FIPO 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 Con n on shares stan ing for the year are 45 shares. Assume a tax ate of30% on all ite s Reund earnings per share te, decimatel e R taandaeeneran esto. decimal places, e.g. 5,275) 2225000 ncome rom Operations Before Income Tax oss on Operation of Clothing Division, Net of Tax

Answer 1

METLOCK INC.
Income Statement (Partial)
For the Year Ended December 31, 2017
Income from continuing operations before income tax (a)		$                23,40,000.00
Income tax = 2340000 x 30%		$                  7,02,000.00
Income from continuing operations		$                16,38,000.00
Discontinued operations
Loss from operating of clothing division =	$           15,000.00
Loss from disposal of clothing division =	$           72,000.00
	$           87,000.00
Less: Applicable income tax reduction	$           26,100.00	$                     45,900.00
Income before extraordinary item		$                15,92,100.00
Extraordinary item
Major casualty loss	$        1,38,000.00
Less: Applicable income tax reduction	$           41,400.00	$                     96,600.00
Net income		$                14,95,500.00
Per share of common stock:
Income from continuing operations	$                    3.64
Discontinued operations, net of tax	$                   -0.10
Income before extraordinary items	$                    3.54
Extraordinary item, net of tax	$                   -0.21
Net income ($1495500 ÷ 450,000 shares)	$                    3.32
No adjustment is needed for the inventory method change, since the new method is reported in 2017 income. The cumulative effect on prior years of retroactive application of new inventory method will be recorded in retained earnings.
*Computation of income from cont. operations before taxes
As previously stated		$                22,25,000.00
Gain on sale of securities		$                  1,11,000.00
Error in computation of depreciation
As computed ($210,000 ÷ 10)	$           21,000.00
Corrected ($210,000 – $40,000) ÷ 10	$          -17,000.00	$                       4,000.00
As restated		$                23,40,000.00