Yr ending Dec. 2012, abc Corp. had income from operations before taxes of 120000
ID: 2351924 • Letter: Y
Question
Yr ending Dec. 2012, abc Corp. had income from operations before taxes of 1200000 bebore considering the following. All transactions below are before taxes & amounts should be considered material.1. During 2012, one for ABC factories was damaged in an earthquake. The firm recognized
a loss of 800,000. the event is considered unusual and infrequent.
2.Nov. 2012, ABC sold its waffle house restaurant that qualified as a component of an entity.
The company adopted a plan to sell the chain in May 2012. The income from the chain from Jan. 1 2012 through November was 160,000 & the loss on sale of chain's assets was 300,000.
3.In 2012,ABC sold one of its six factories for 1,200,000. At time of sale it had a carring value
of 1,100,000. The factory was not concerned a component of the entity.
4.in 2010, ABC accountant omitted the annual adj. for patent amortization expense of 120,000.
The error was not discovered until dec. 2012.
Questions:
1 - Need to prepare an income statement, beginning with income from continuing operations before
taxes, for the yr. ended dec. 2012. Assume income tax rate of 30%. ???? not sure of layout
2 - Explain the motivation for segregating certain income statement events from income from
continuing operations????
Explanation / Answer
In addition to the account balances above, several events occurred during 2011 that have not yet been reflected in the above accounts: 1. A fire caused $50,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. 2. An earthquake caused $100,000 in property damage to one of Reed's factories. The amount of the loss is material and the event is considered unusual and infrequent. 3. Inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $5,000. 4. Income taxes have not yet been accrued. Required: Prepare a multiple-step income statement for the Reed Company for 2011, showing 2010 information in comparative format, including income taxes computed at 40% and EPS disclosures assuming 300,000 shares of common stock.
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