Question

Pina Colada 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 $70,800 (residual value of $17,400) 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. 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 129,940 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

Pina Colada Inc. Income Statement (Partial) For the Year Ended December 31, 2020 Income from continuing operations before income taxes Income tax expense Income from continuing operations Discontinued operations Loss from disposal of recreational division $132.250 Less: Applicable income tax reduction -$39,675 Net Income / (loss) $1,908.450 -$553,905 $1,354,545 -$92,575 $1,261,970 $10.42 -S0.71 $9.71 Earning per share Income from continuing operations ($1,354,545 / 129,940 shares) Discontinued operations, net of tax (-$92,575 / 129,940 shares) Net Income / loss) Workings: Income from continued operation before income taxes: As previously stated loss on sale of FV-NI investments Gain on Proceeds of Lie Insurance Policy ($115,000 - $52.900) Flood loss Error in computation of depriciation As computed (570.800 / 6 years) Corrected [(870.800 - $17.400) / 6 years] As restated $2.058,500 -$123,050 $62.100 -$92,000 $11.800 $8.900 $2.900 $1,908,450 Income tax expense: Income from continuing operations before taxes Non taxable income (gain on life insurance) Taxable income Tax rate Income tax expense $1,908,450 -$62.100 $1.846,350 30% $553,905

Pina Colada Inc. Except from Statement of Changes in Equity For the Year Ended December 31, 2020 Retained Earnings, January 1, 2020. As Reported $2.921,000 Retroactive Adjustment for change in inventory method (Net of Tax) $32,200 Correction of depreciation overstatemnet (Net of Tax) $4.060 $36,260 Retained Earnings, January 1, 2020, As Adjusted $2.957,260 Add: Net Income / (Loss) $1,261,970 $4,219,230 Less: Dividends $201,250 Retained Earnings. December 31, 2020 $4,017,980| Workings: Retroactive Adjustment for change in inventory method (Net of Tax): Before tax understatement of 2018 income Before tax overrstatement of 2019 income Uunderstatement of beginning retained earnings Uunderstatement (Net of Tax) [S46,000 * (1 - 30%)] $69.000 -$23,000 $46,000 $32,200 Correction of depreciation overstatemnet (Net of Tax): Error in computation of depriciation As computed (870.800 / 6 years) Corrected [(S70,800 - $17.400) / 6 years] Understatement of net income per year Total understatement of beginning retained earnings ($2,900 * 2 years) Uunderstatement (Net of Tax) [$5,800 * (1 - 30%)] $11,800 $8.900 $2,900 $5,800 $4,060