Question

* Question 3 Martinez Inc. reported income from continuing operations before tax of $2,058,500 during 2020. Additional transactions occurring in 2020 but not included in the $2,058,500 were as follows: 1. The corporation experienced an insured flood loss of $92,000 during the year. 2. At the beginning of 2018, the corporation purchased a machine for $67,200 (residual value of $15,600) 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 $123,050. 4. When its president died, the corporation gained $115,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $52,900. (the gain is non-taxable.) 5. The corporation disposed of its recreational division at a loss of $132,250 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 $69,000 and decrease 2019 income by $23,000 before taxes. The FIFO method has been used for 2020. 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 136,155 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 0 decimal places, e.g. 5275. Round EPS answers to 2 decimal places, e.g. 52.75.)

Answer 1

$ Martinez Inc Income Statement (Partial) For the Year ended 2020 Income from Continuing Operations before Income tax Income Tax expense Income from Continuing Operations Discontinued Operations Loss from Disposal of Recreational Division Less: Applicable income Tax reduction 19,08,150 5,53,815 13,54,335 1,32,250 39,675 92,575 $ 14,46,910 Net Income Earning Per Share Income from Continuing Operations (13,54,335 /136,155) Discontinued Operations Net Tax (92,575 / 136,155) Net Income 9.95 0.68 9.27 $ Computation of Income from Continuing operations before taxes As previously stated Less: Loss on Sale of securities Add: Gain on proceeds of Life Insurance Policy (115,000 - 52,900) Less: Flood loss 20,58,500 1,23,050 62,100 92,000 19,05,550 Error in computation of depreciation As computed (67,200 / 6) Corrected [(67,200 - 15,600)/2] As restated Correct Income from Continuing operations before income tax 11,200 8,600 2,600 19,08,150

Computation of Income taxes Income from Continuing Operations before Income tax less: Non taxable income Taxable income Tax rate Income tax expense $ 19,08,150 62,100 18,46,050 30% $ 5,53,815

Martinez Inc Excerpt from Statement of changes in Equity As on 2020 Retained earning- Opening Balance Add: Net income $ 14,46,910 Less: Dividend 2,01,250 $ 29,21,000 Retained earnings before Inventory Adjustments Add: Increase In Income 2019 (69,000 x 70%) Less: Decrease In Income 2019 (23,000 x 70%) Retained earning-Closing Balance 12,45,660 $ 41,66,660 48,300 16,100 $ 41,98,860