Question

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Marin Inc. reported income from continuing operations before taxes during 2017 of $2,125,000. Additional transactions occurring in 2017 but not considered in the $2.125.000 are as follows. 1. Again of $121,000 (pretax) as a result of selling securities from its investment portfolio. 2. A $18,000 loss before taxes as a result of operating the discontinued clothing division during 2017 3. A loss of $62,000 before taxes as a result of disposing of its clothing division. Assume that this transaction meets the criteria for discontinued operations. 4. An uninsured $120,000 loss due to a fire. 5. At the beginning of 2015, the corporation purchased a machine for $240,000 (salvage value of $20,000) that had a useful life of 10 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base. 6. 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 $50,000 and decrease 2016 income by $11,000 before taxes. The FIFO method has been used for 2017. 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 400.000 shares. (Assume a tax rate of 30% on all items.) (Round earnings per share to 2 decimal places, eg. 1.48 and all other answers to O decimal places, e.g. 5,275.)

Answer 1

1 Tax rate 2 Equity shares (Nos.) 40% 4,00,000 6,000 4 Particulars Amount ($) Amount ($) 5 6 Income from cont. operations as per the problem: 21,25,000 7 8 Normal Adjustments: 9 Gain on securities 1,21,000 10 Salvage value adjustment on depreciation 11 1,27,000 12 Exceptional Items: 13 Loss on Fire -1,20,000 -1,20,000 15 16 Adjusted Income from Continuing Operations 21,32,000 17 18 19 Loss on discontinuing operations 20 Loss of Clothing division -18,000 21 Disposal cost of clothing division -62,000 22 Discontinuing operation (Sub-total) -80,000 14 24 Net Income/(Loss) 20,52,000 $5.33 27 Per share calculations (Divide by o/s shares = 4,00,000 nos.) 28 29 Net Income from Continuing Operations 30 31 Discontinued Operations 32 Loss of Clothing division 33 Disposal cost of Clothing division -$0.05 -$0.16 34 35 Net Income/(Loss) $5.13