Question

Show Attempt History Current Attempt in Progress Splish Inc. reported income from continuing operations before taxes during 2020 of $796,800. Additional transactions occurring in 2020 but not considered in the $796,800 are as follows. 1. The corporation experienced an uninsured flood loss in the amount of $94,100 during the year. 2. At the beginning of 2018, the corporation purchased a machine for $81,000 (salvage value of $13,500) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2018, 2019, and 2020, but failed to deduct the salvage value in computing the depreciation base. 3. Sale of securities held as a part of its portfolio resulted in a loss of $65,000 (pretax). 4. When its president died, the corporation realized $161.400 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $43,510 (the gain is nontaxable). 5. The corporation disposed of its recreational division at a loss of $124,360 before taxes. Assume that this transaction meets the criteria for discontinued operations. 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 2018 income by $58,130 and decrease 2019 income by $21,060 before taxes. The FIFO method has been used for 2020. The tax rate on these items is 30%. Prepare an income statement for the year 2020 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 110,320 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) (Round earnings per share to 2 decimal places, e-8. 1.48 and all other answers to 0 decimal places,

Answer 1

To prepare the income statement for Splish Inc. for the year 2020, start with income from continuing operations before taxes of $796,800. Adjust for additional transactions, such as uninsured flood loss, depreciation adjustment, securities sale loss, insurance policy gain, disposal loss, and inventory pricing change. Calculate adjusted income and apply the tax rate of 30%. Divide the net income by the number of common shares outstanding to compute earnings per share.

To prepare the income statement for Splish Inc. for the year 2020, we need to start with the income from continuing operations before taxes of $796,800. We will then adjust for the additional transactions that occurred during the year.

The transactions include:

1. An uninsured flood loss of $94,100
2. A depreciation adjustment for the machine purchased in 2018, resulting in a decrease of $12,000 ($81,000 - $13,500) in depreciation expense for 2020
3. A loss of $65,000 from the sale of securities
4. A gain of $161,400 from an insurance policy due to the president's death
5. A loss of $124,360 from the disposal of the recreational division
6. An adjustment for the change in inventory pricing method, resulting in an increase of $58,130 in 2018 income and a decrease of $21,060 in 2019 income

First, we calculate the adjusted income from continuing operations before taxes by subtracting the losses and adding the gain:

$796,800 - $94,100 - $65,000 + $161,400 - $124,360 = $674,740

Next, we adjust for the depreciation adjustment:

$674,740 + $12,000 = $686,740

Finally, we calculate the net income by applying the tax rate of 30% to the adjusted income:

$686,740 × (1 - 0.30) = $480,718

To compute earnings per share, we divide the net income by the number of common shares outstanding:

$480,718 / 110,320 = $4.36 per share