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

Question

Marin Inc. reported income from continuing operations before taxes during 2017 of $2,300,000. Additional transactions occurring in 2017 but not considered in the $2,300,000 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 500,000 shares. (Assume a tax rate of 30% on all items.)

1. A gain of $110,000 (pretax) as a result of selling securities from its investment portfolio. 2. A $27,000 loss before taxes as a result of operating the discontinued clothing division during 2017. 3. A loss of $78,000 before taxes as a result of disposing of its clothing division. Assume that this transaction meets the criteria for discontinued operations. 4. An uninsured $130,000 loss due to a fire. 5. At the beginning of 2015, the corporation purchased a machine for $290,000 (salvage value of $35,000) that had a useful life of 10 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base. 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 $55,000 and decrease 2016 income by $19,000 before taxes. The FIFO method has been used for 2017. MARIN INC. Income Statement (Partial) Per share of common stock:

Explanation / Answer

Marin Inc. Income Statement

Note - 1

Depreciation as per current terms = 290000/10 = 29,000

Depreciation as per considering salvage value = (290000-35000)/10 = 25,500

Difference = 3,500 per year

For 3 years = 3500 * 3 = 10,500

Particulars Amount Net Income Before Tax 2,300,000 Gain From selling of securities 110,000 Loss due to fire (130,000) Depreciation changes (Note 1) 10,500 Prior year Adjustments 2015 55,000 2016 (19,000) Net income before tax - Continuing Operations 2,326,500 Tax Expense (30%) (697,950) Net Profit after Tax - Continuing Operations 1,628,550 Gain (Loss) from Discontinued Operations - Net of tax Loss from Clothing Division (Net of Taxes) (18,900) Loss from disposing Clothing Division (Net of Taxes) (54,600) Net Loss from Discontinuing Operations (73,500) Earnings Per Share Continuing Operations (1,628,550/500,000) 3.3651 Discontinuing Operations (73,500/500,000) (0.147)

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