Maher Inc Reported Income From Continuing Operations Before Taxes During 2020 of 790 000
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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
Presented below is information related to Viel Company on December 31, 2017, the end of its first year of operations.
Sales revenue $310,000
Cost of goods sold 140,000
Selling and administrative expenses 50,000
Gain on sale of plant assets 30,000
Unrealized gain on non-trading equity securities 10,000
Interest expense 6,000
Loss on discontinued operations 12,000
Allocation to non-controlling interest 40,000
Dividends declared and paid 5,000
Instructions
Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company controlling shareholders, (d) comprehensive income, and (e) retained earnings balance on December 31, 2017. (Ignore income taxes.)
Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.
Increase Increase
(Decrease) (Decrease)
Cash $79,000 Accounts Payable
Accounts Receivable (net) $45,000 Bonds Payable $82,000
Inventory $127,000 Common Stock $125,000
Investments (47,000) Paid-In Capital in Excess of Par $13,000
Instructions
Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.
Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.
(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of $425,000 would have been charged.
(b) In 2017, a flood destroyed a warehouse that had a book value of $1,600,000. Floods are rare in this locality.
(c) In 2017, the company wrote off $1,000,000 of inventory that was considered obsolete.
(d) In 2014, a supply warehouse with an expected useful life of 7 years was erroneously expensed.
(e) Boleyn, Inc. changed from weighted-average to FIFO inventory pricing.
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