Question

Alicat Corp reported 20x4 income from continuing operations before tax of $50,000. Not included in the $50,000 are the following items: a) Alicat sold an old delivery truck that is no longer needed in the business. The net book value of the truck was $5,000 and Alicat was able to sell it for $6,000. b) Because of a change in economic conditions over the year, it was determined that the allowance for doubtful accounts was understated as of 12/31/X4 by $5,000. c) The internal audit team discovered an incorrect useful life in the fixed asset system. The impact of this error was to overstate depreciation expense by $1,500 in both 20x3 and 20X4. d) Alicat disposed of its dog product business during 20X4 at a loss of $20,000. Prior to disposal, the dog product business generated an operating gain of $10,000. Prepare an income statement beginning with income from continuing operations before tax. Assume #a tax rate of 25% on all items. Include EPS disclosures (assume 1,000 shares outstanding).

Answer 1

Preparation of Income Statement

Income Statement of Alicat Corp.
Particulars	Amount   $	Amount   $
Income from Continuing Operation before tax		50,000.00
Add:
- Profit on Sale of Old Delivery Truck	1,000.00
- Over Stated Depreciation on 20x3 & 20x4	1,500.00	2,500.00
		52,500.00
Less:
-Under Stated Provision for doutful debts	5,000.00
- Loss on sales of dog product business	10,000.00	15,000.00
Income from Operation Befor tax		37,500.00
Tax	9,375.00	9,375.00
Net Income After Tax		28,125.00

Calculation of EPS

EPS(1000 Shares outstanding) = 28125/1000 = 28.13 per Share