Question

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. 1. The corporation experienced an uninsured flood loss in the amount of $90,000 during the year 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% 2. 3. 4. 5. 6. 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.) (Round earnings per share to 2 decimal places,e.g. 1.48 and all other answers to 0 decimal places, e.g. 5,275.)

Answer 1

income from continuing operation before tax		$          7,48,500
income tax		$          1,93,350
income from continuing operation		$          5,55,150
discontinued operations
loss from disposal of recreation divison	$   1,15,000
less applicable income tax	$      34,500	$             80,500
Net Income		$          4,74,650
Per Share of common stock
Income from continuing operation ($555,150/120000 shares)		4.63
Discontinued Operations Net of tax ($80500/120000 shares)		-0.67
Net Income ($489050/ 120000 shares)		3.96
Computation of Income from continued operation before taxes
As previously stated		$          7,90,000
loss on sale of securities		$            -57,000
Gain on Proceeds of Lie Insurance Policy (150000 - 46000)		$          1,04,000
Flood Loss		$             90,000
Error in computation of depriciation
As computed (54000 / 6 )	$         9,000
Corrected ( 54000 - 9000 /6)	$         7,500	$                1,500
As restated		$          7,48,500
computation of income tax
income from continuing operation before taxes		$          7,48,500
nontaxable income (gain on life insurance)		$        -1,04,000
taxable income		$          6,44,500
Tax rate 30%		$                        0
Income Tax expense		$          1,93,350