Crane Inc. reported income from continuing operations before taxes during 2017 o

Question

Crane Inc. reported income from continuing operations before taxes during 2017 of $820,000. Additional transactions occurring in 2017 but not considered in the $820,000 are as follows.

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 126,960 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

1. The corporation experienced an uninsured flood loss in the amount of $93,500 during the year. 2. At the beginning of 2015, the corporation purchased a machine for $61,200 (salvage value of $10,200) 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. 3. Sale of securities held as a part of its portfolio resulted in a loss of $60,800 (pretax). 4. When its president died, the corporation realized $160,300 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $41,790 (the gain is nontaxable). 5. The corporation disposed of its recreational division at a loss of $113,760 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 2015 income by $62,460 and decrease 2016 income by $19,270 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%. CRANE INC. Income Statement (Partial)

Explanation / Answer

Answer:

1

CRANE INC.

Income Statement (Partial)

For the Year Ended December 31, 2017

Income from continuing operations before income tax (a)

$879,410

Income tax (b)

228,270

Income from continuing operations

651,140

Discontinued operations

Loss from disposal of recreational division

$113,760

Less: Applicable income tax reduction

34,128

79,632

Income before extraordinary item

571,508

Extraordinary item:

Major casualty loss

93,500

Less: Applicable income tax reduction

28,050

65,450

Net income

$506,058

2

Per share of common stock:

Income from continuing operations ($651,140 / 126,960 shares) (Rounded)

$5.13

Discontinued operations, net of tax ($79,632 / 126,960 shares) (Rounded)

(0.63)

Income before extraordinary items

4.50

Extraordinary item, net of tax ($65,450 / 126,960 shares)

(0.52)

Net income ($506,058 ÷ 126,960 shares)

$3.99

working notes for the answer:

A)

(a) Computation of income from continued operations before taxes:

As previously stated

$820,000

Loss on sale of securities

(60,800)

Gain on proceeds of life insurance policy ($160,300 – $41,790)

118,510

Error in computation of depreciation

As computed ($61,200 ÷ 6)

10,200

Corrected (($61,200 – $10,200) ÷ 6)

8,500

1,700

As restated

$879,410

B)

(b) Computation of income tax:

Income from continuing operations before taxes

$879,410

Nontaxable income (gain on life insurance)

(118,510)

Taxable income

760,900

Tax rate

30%

Income tax expense

$228,270

Note:

No adjustment is needed for the inventory method change, since the new method is reported in 2017 income. The cumulative effect on prior years of retroactive application of the new inventory method will be recorded in retained earnings.

CRANE INC.

Income Statement (Partial)

For the Year Ended December 31, 2017

Income from continuing operations before income tax (a)

$879,410

Income tax (b)

228,270

Income from continuing operations

651,140

Discontinued operations

Loss from disposal of recreational division

$113,760

Less: Applicable income tax reduction

34,128

79,632

Income before extraordinary item

571,508

Extraordinary item:

Major casualty loss

93,500

Less: Applicable income tax reduction

28,050

65,450

Net income

$506,058

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---