Maher Inc Reported Income From Continuing Operations Before Taxes During 2017
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Question 3P
Expert-verified
Found in: Page 187
Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201
Short Answer
Maher Inc. reported income from continuing operations before taxes during 2017 of $790,000. Additional transactions occurring in 2017 but not considered in the $790,000 are as follows.
- The corporation experienced an uninsured flood loss in the amount of $90,000 during the year.
- 2. At the beginning of 2015, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base.
- Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).
- When its president died, the corporation realized $150,000 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 nontaxable).
- The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for 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 2015 income by $60,000 and decrease 2016 income by $20,000 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%.
Instructions
Prepare an income statement for the year 2017 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)
The net income of the company is $474,650.
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Step by Step Solution
Meaning of Income Statement
An income statement contains the expenses and revenues associated with an accounting period. It facilitates the business entities to determine their profits earned or losses incurred by various business operations.
Preparation of income statement
| In the books of Maher Inc. Income Statement For the year ended 2017 | ||
| Particulars | Details | Amounts ($) |
| Income from continuing operations before tax (Note No.1) | 838,500 | |
| Less: Income tax (Note No. 2) | (220,350) | |
| Income from continuing operations | 618,150 | |
| Discontinued operations | ||
| Loss on disposal of recreational division | 115,000 | |
| Less: Income tax @ 30% | (34,500) | (80,500) |
| Income before extraordinary items | 537,650 | |
| Extraordinary items | ||
| Loss from flood | 90,000 | |
| Less: Income tax @ 30% | (27,000) | (63,000) |
| Net income | 474,650 | |
| Per share income | ||
| Income from continuing operations (618,150/120,000) | 5.15 | |
| Discontinued operations (80,500/120,000) | (0.67) | |
| Income before extraordinary items (537,650/120,000) | 4.48 | |
| Extraordinary item, net of tax (63,000/120,000) | (0.53) | |
| Net income (474,650/120,000) | 3.95 | |
Note No.1: Computation of restated income from continuing operations
| Particulars | Amounts ($) |
| Income from continuing operations (given) | 790,000 |
| Less: Loss on sale of securities | (57,000) |
| Add: Gain on proceeds from an insurance policy ($150,000-$46,000) | 104,000 |
| Adjustments of error in depreciation computation | |
| Incorrect depreciation ($54,000/6) 9,000 | |
| Correct depreciation ($54,000-$9,000)/6 7,500 | 1,500 |
| Restated income from continuing operations | $838,500 |
Note No.2: Computation of income tax
| Particulars | Amounts ($) |
| Income from continuing operations before tax | 838,500 |
| Less: Nontaxable income (Gain on an insurance claim) | (104,000) |
| Taxable income | 734,500 |
| Tax rate | @ 30% |
| Income tax expense | $220,350 |
Most popular questions for Business-studies Textbooks
Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2017. Expenses for 2017 were cost of goods sold $1,450,000, administrative expenses $212,000, selling expenses $280,000, and interest expense $45,000. Brisky's tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.
Question: (Earnings per Share) The stockholders' equity section of Hendly Corporation appears below as of December 31, 2017.
8% preferred stock, $50 par value, authorized
100,000 shares, outstanding 90,000 shares $4,500,000
Common stock, $1.00 par, authorized and issued 10 million shares 10,000,000
Additional paid-in capital 20,500,000
Retained earnings $134,000,000
Net income 33,000,000167,000,000
$202,000,000
Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of $360,000 were declared and paid in 2017. Dividends of $1,000,000 were declared and paid to common stockholders in 2017.
Instructions
Compute earnings per share data as it should appear on the income statement of Hendly Corporation.
The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations $187,000, income tax applicable to loss on discontinued operations $25,500, and unrealized holding gain on available-for-sale securities (net of tax) $15,000.
Gain on sale of equipment $95,000 Cash dividends declared $150,000
Loss on discontinued operations75,000 Retained earnings January1,2017 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Loss on write-down of inventory 60,000 Sales revenue 1,900,000
Shares outstanding during 2017 were 100,000.
Instructions
- Prepare a single-step income statement.
- Prepare a comprehensive income statement for 2017 using the two statement format.
- Prepare a retained earnings statement for 2017.
Recommended explanations on Business-studies Textbooks
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