Problem 4-7 Wade Corp. has 150,600 shares of common stock outstanding. In 2014,

Question

Problem 4-7

Wade Corp. has 150,600 shares of common stock outstanding. In 2014, 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.

Analyze the above information and prepare an income statement for the year 2014, 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, e.g. 1.48.)

1. In 2014, Wade Corp. sold equipment for $36,400. The machine had originally cost $84,100 and had accumulated depreciation of $31,300. The gain or loss is considered ordinary. 2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $90,300 before taxes; the loss from disposal of the subsidiary was $99,700 before taxes. 3. An internal audit discovered that amortization of intangible assets was understated by $39,700 (net of tax) in a prior period. The amount was charged against retained earnings. 4. The company had a gain of $127,100 on the condemnation of much of its property. The gain is taxed at a total effective rate of 40%. Assume that the transaction meets the requirements of an extraordinary item.

Explanation / Answer

Income Statement for year ending 2014

Wade corp.

a.Income from continuing operation before tax $1229200

b.(-) Loss from sale of asset ((84100-31300)-36400) $16400

c.(-) Loss from operations of subsy company $90300

d.(-) Past amortization of intangible asset(39700/.62) $64032

e. Income from continuing operation before tax(a-b-b-d) $1058468

f.Other extraodinary item $127100

Total income before tax (e+f) $1185568

(-) tax @38% on ordinary item $402218

(-) tax @40% on extraordinary item $50840

Income after tax $732510

outstanding share in 2014 :150600

earning per share (732510/150600) $4.86/share

NOTE: loss from sale of discontinuing operation will have no effect on the income statement as it is capital loss.

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