Income Statement Partial For the Year Ended Income from

Income statement partial for the year ended income

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Income Statement (Partial) For the Year Ended December 31, 2014 Income from continuing operations before income tax ........................................................ $1,200,000* Income tax ........................................................... 456,000 ** Income from continuing operations .............................. 744,000 Discontinued operations Loss from operations of discontinued subsidiary ................................. $ 90,000 Less: Applicable income tax reduction ($90,000 .38) ................ 34,200 $ 55,800 Loss from disposal of subsidiary ............................ 100,000 Less: Applicable income tax reduction ($100,000 .38) .............. 38,000 62,000 (117,800) Income before extraordinary item ................................. 626,200 Extraordinary item: Gain on condemnation ....................................... 125,000 Less: Applicable income tax ............................. 50,000 * 75,000 Net income ....................................................................... $ 701,200 * $125,000 40% Per share of common stock: Income from continuing operations ............................................................. $4.96 Discontinued operations, net of tax ............................................................. (0.79 ) Income before extraordinary item ................................................................ 4.17 Extraordinary item, net of tax ....................................................................... 0.50 Net income ($701,200 ÷ 150,000) .................................................................. $4.67
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*Computation of income from continuing operations before income tax: As previously stated $1,210,000 Loss on sale of equipment [$40,000 ($80,000 $30,000)] (10,000 ) Restated $1,200,000 **Computation of income tax: $1,200,000 X .38 = $456,000 Note : The error related to the intangible asset was correctly charged to retained earnings. CA 4-3 (a) The ethical issues involved are integrity and honesty in financial reporting, full disclosure, accountant’s professionalism, and job security for Charlie. (b) If Charlie believes the losses are relevant information important to users of the income statement, he should disclose the losses separately. If they are considered incidental to the company’s normal activities— i.e., the major activities of the Kelly Corporation do not include selling equipment the transactions should be reported among any gains and losses that occurred during the year. CA 4-4 (a) It appears that the sale of the Casino Knights Division would qualify as a discontinued operation. The operation of gambling facilities appears to meet the criteria for discontinued operations for Simpson Corp. and, therefore, the accounting requirements related to discontinued operations should be followed. Although the
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