Problem 4-7 Windsor Corp. has 149,520 shares of common stock outstanding. In 201

Question

Problem 4-7 Windsor Corp. has 149,520 shares of common stock outstanding. In 2017, the company reports income from continuing operations before income tax of $1,229,200. Additional transactions not considered in the $1,229,200 are as follows. 1. 2. In 2017, Windsor Corp. sold equipment for $36,200. The machine had originally cost $83,500 and had accumulated depreclation of $31,600. The gain or loss is considered non-recurring The company discontinued operations of one of its subsidiaries during the current year at a loss of $191,600 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $91,600 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes. 3. An internal audit discovered that amortization of intangible assets was understated by $38,100 (net of tax) in a prior period. The amount was chged against retained earnings. . The company had a non-recurring gain of $129,900 on the condemnation of some of its property (included in the $1,229,200), Analyze the above information and prepare an income statement for the year 2017, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.) (Round earnings per share to 2 decimal places, eg. 1.47.) WINDSOR CORP Income Statement (Partial)

Explanation / Answer

Windsor Corp

Windsor Corp

Income Statement (Partial)

for the year ended December 31, 2017

Income from continuing operations before tax

$1,083,600

Income tax

$411,768

Income from continued operations

$671,832

Discontinued operations

Loss from operations of discontinued subsidiary

$91,600

Less: applicable income tax reduction

$34,808

$56,792

Loss from disposal of the subsidiary

$100,000

Less: applicable income tax reduction

$38,000

$62,000

Loss from discontinued operations (net of tax)

$118,792

Income before extraordinary item

$553,040

Extraordinary item:

Gain on condemnation

$129,900

Less: applicable tax

$49,362

$80,538

Net Income

$633,578

Per share of common stock:

Income from continuing operations

$4.23

Loss from discontinued operations (net of tax)

($0.79)

Income before extraordinary item

$3.45

Extraordinary gain (net of tax)

$0.54

Net Income

$3.99

Notes:

Accumulated depreciation $31,600

Book value $51,900

Sale proceeds-$36,200

Loss on sale$15,700

Income reported from continuing operations $1,229,200

Less: adjustment for loss on sale of equipment$15,700

Income from continuing operations before income tax$1,213,500

Less: extraordinary gain included$129,900

Income from continuing operations before income tax$1,083,600

Income from continuing operations $633,578/149,520 shares = $4.23

Loss from discontinued operations $118,792/149,520 = $0.79

Extraordinary gain$80,538/149,520 = $0.54

Windsor Corp

Income Statement (Partial)

for the year ended December 31, 2017

Income from continuing operations before tax

$1,083,600

Income tax

$411,768

Income from continued operations

$671,832

Discontinued operations

Loss from operations of discontinued subsidiary

$91,600

Less: applicable income tax reduction

$34,808

$56,792

Loss from disposal of the subsidiary

$100,000

Less: applicable income tax reduction

$38,000

$62,000

Loss from discontinued operations (net of tax)

$118,792

Income before extraordinary item

$553,040

Extraordinary item:

Gain on condemnation

$129,900

Less: applicable tax

$49,362

$80,538

Net Income

$633,578

Per share of common stock:

Income from continuing operations

$4.23

Loss from discontinued operations (net of tax)

($0.79)

Income before extraordinary item

$3.45

Extraordinary gain (net of tax)

$0.54

Net Income

$3.99

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