Question

1. Concord Corp. has 150,240 shares of common stock outstanding. In 2020, the company reports income from continuing operations before income tax of $1.240,000. Additional transactions not considered in the $1.240,000 are as follows. In 2020, Concord Corp. sold equipment for $35,000. The machine had originally cost $84,900 and had accumulated depreciation of $31,700. The gain or loss is considered non-recurring. 2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $194,900 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $94,600 before taxes; the loss from disposal of the subsidiary was $100,300 before taxes. An internal audit discovered that amortization of intangible assets was understated by $38,200 (net of tax) in a prior period. The amount was charged against retained earnings. The company recorded a non-recurring gain of $125,500 on the condemnation of some of its property (included in the $1,240,000). 3. 4. Analyze the above information and prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 19% on all items, unless otherwise indicated.) (Round earnings per share to 2 decimal places, eg. 1.47.)

Answer 1

Prepare the income statement as follows:

Concord Corp.

Income Statement (Partial)

For the Year 2020

Income from continuing operations before income tax			1,258,200
Less: Income tax ($1,258,200x 19%)			239,058
Income from continuing operations after income tax			1,019,142
Discontinued operations:
Loss from operations of discontinued operations	94,600
Less: Applicable income tax reduction ($94,600 x 19%)	17,974	76,626
Loss from sale of discontinued operations	100,300
Less: Applicable income tax reduction ($100,300 x 19%)	19,057	81,243
Loss from discontinued operations, net of tax			157,869
Income before extraordinary item			861,273
Extraordinary item:
Gain on condemnation		125,500
Less: Applicable income tax ($125,500 x 19%)		23,845
Extraordinary gain, net of tax			101,655
Net income			962,928
Earnings per share:
Income from continuing operations ($1,019,142/150,240)			6.78
Loss from discontinued operations ($157,869/150,240)			-1.05
Income before extraordinary item ($861,273/150,240)			5.73
Extraordinary gain ($101,655/150,240)			0.68
Net income			6.41

Workings:

Income from continuing operations shown in the income statement has been computed in the following manner:

Income from continuing operations before income tax, as given	1,240,000
Less: Loss on sale of equipment ($84,900 - $35,000 - $31,700)	18,200
Adjusted income from continuing operations	1,258,200