Question

Problem 4-13

Pronghorn Corp. is a public company and has 100,000 common shares outstanding. In 2020, the company reported income from continuing operations before income tax of $2,926,800. Additional transactions not considered in the $2,926,800 are as follows:

1.		In 2020, Pronghorn Corp. sold equipment for $151,200. The machine had originally cost $86,400 and had accumulated depreciation to date of $38,880.
2.		The company discontinued operations of one of its subsidiaries during the current year at a loss of $313,200 before tax. Assume that this transaction meets the criteria for discontinued operations. The loss on operation of the discontinued subsidiary was $97,200 before tax. The loss from disposal of the subsidiary was $216,000 before tax.
3.		The sum of $561,600 was received as a result of a lawsuit for a breached 2017 contract. Before the decision, legal counsel was uncertain about the outcome of the suit and Pronghorn had not established a receivable.
4.		In 2020, the company reviewed its accounts receivable and determined that $58,320 of accounts receivable that had been carried for years appeared unlikely to be collected. No allowance for doubtful accounts was previously set up.
5.		An internal audit discovered that amortization of intangible assets was understated by $37,800 (net of tax) in a prior period. The amount was charged against retained earnings.

Analyze the above information and prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Calculate earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 25% on all items, unless otherwise indicated.) (Round per share answers to 2 decimal places, e.g. 52.75. Disclose Discontinued operations tax information separately.)

Answer 1

Answer :-

	Income from continuing operations before income tax			$ 2,926,800
	Less: income Tax [$2,926,800 × 25%]			$ 731,700
	Income from continuing operations			$ 2,195,100
	Discontinued Operations :
	Loss from operations of discontinued subsidiary	$97,200
	Less: Applicable income tax reduction [ $97,200 × 25%]	$ 24,300	$72,900
	Loss from disposal of subsidiary	$216,000
	Less: Applicable income tax reduction [$216,000 × 25%]	$ 54,000	$162,000
	Loss from discontinued operations (net of tax)			$ 234,900
	Net Income			$ 1,935,900
	Earning Per Share of Common Stock:
	Income from continuing operations		$21.708	[$2,195,100/100000 shares]
	Extraordinary Gain (net of tax)		$2.329	[$ 234,900 /100000 shares]
	Net Income		$19.359

Earnings per share = $19.359