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LT+week+3 - P4-3(Irregular Items Tony Rich Inc reported...

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deduct the salvage value in computing the depreciation base. before taxes. The FIFO method has been used for 2007. The tax rate on these items is 40%. Instructions Prepare an income statement for the year 2007 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 80,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) Tony Rich Inc. Income Statement 2). $54,000 / 6 years = $9,000 For the Year Ended December 31, 2007 3). ($54,000 - $9,000) / 6 years = $7,500 4). $9,000 - $7,500 = $1,500 Income from continuing operations before taxes Before Income Tax $798,000 Solutions Income taxes: Income tax 220,350 1). $798,500 - $64,000 = $734,500 Income from continuing operations 578,150 Discontinued operations Loss from disposal of recreational division $115,000 Less: Applicable income tax reduction 34,500 80,500 ($115,000 x 30%) Income before extraordinary item 497,650 Extraordinary item: Major casualty loss 80,000 Less: Applicable income tax reduction 36,800 43,200 ($80,000 x 46%) Net Income $454,450 Per share of common stock: $7.23 ($578,150 / 80,000 shares) Discontinued operations, net of tax -1.01 ($80,500 / 80,000 shares) Income before extraordinary items 6.22 Extraordinary item, net of tax -0.54 ($43,200 / 80,000 shares) Net Income $5.68 P4-3 (Irregular Items) Tony Rich Inc. reported income from continuing operations before taxes during 2007 of $790,000. Additional transactions occurring in 2007 but not considered in the $790,000 are as follows. 1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $80,000 during the year. The tax rate on this item is 46%. 2. At the beginning of 2005, 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 2005, 2006, and 2007 but failed to 3.
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