Question

Wavecresting reported income from continuing operations before tax of $1,790,000 during 2020. Additional transactions Occurring in 2020 but not included in the $1,790,000 were as follows: 1 2 3 The corporation experienced an insured flood loss of $80,000 during the year. At the beginning of 2018, the corporation purchased a machine for $54,000 residual value of $9,000) 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. The sale of FV.NI investments resulted in a loss of $102,000 When its president died, the corporation gained $100,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000. (the gain is non-taxable.) The corporation disposed of its recreational division at a loss of $115.000 before tax. Assume that this transaction meets the criteria for accounting treatment as discontinued operations. 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 $60,000 and decrease 201income by $20.000 before taxes. The FIFO method has been used for 2020. 5. Your answer is partially correct. Prepare an income statement for the year 2020, starting with income from continuing operations before income tax Calculate earnings per share as required under FRS. There were 80.000 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 decimal places, 5275. Round EPS answers to 2 decimal places, s. 52.75.)

Answer 1

Corrected Income from continued operation before taxes
As per provided in question		$   1,790,000
Loss on sale of securities		$     (107,000)
Gain on proceeds of life insurance (100000-46000)		$         54,000
Error in computation of depreciation: for current year
As computed wrongly (54000/6)	$            9,000
Less: As Corrected ((54000-9000)/6)	$            7,500	$            1,500
Income from continued operation before taxes		$   1,738,500
Income from continuing operations before taxes		$   1,738,500
Less: Nontaxable income (gain on life insurance)		$         54,000
Taxable income		$   1,684,500
Multiply: tax rate		30%
Income tax expense		$       505,350

Change in inventory method results in prior year would be affect on the retained earnings, not on the income statement.

Company Name
Partial Income statement
For the Year Ended Dec 31, 2020
Income from continued operation before taxes		$   1,738,500
Less: Income tax expense		$     (505,350)
Income from continuing operations		$   1,233,150
Discontinued operations
Loss from disposal of recreational division	$       115,000
Less: Applicable income tax reduction (115000*30%)	$       (34,500)	$         80,500
Income before extraordinary items		$   1,152,650
Extraordinary item
Major Loss: uninsured flood loss	$          80,000
Less: Applicable income tax reduction (80000*30%)	$       (24,000)	$         56,000
Net income		$   1,208,650
Per share of common stock
Income from continuing operations		$            15.41
Discontinued operations, net of tax		$            (1.01)
Income before extraordinary items		$            14.40
Extraordinary item, net of tax		$            (0.70)
Net income		$            13.70

Income from continuing operations	$    1,233,150	Divided by	80,000	$    15.41
Discontinued operations, net of tax	$       (80,500)	Divided by	80,000	$    (1.01)
Income before extraordinary items	$       (56,000)	Divided by	80,000	$    (0.70)