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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Income Statement, Lower Portion Cunningham Company reports a retained earnings balance of $365,200 at the beginning of 2019. For the year ended December 31, 2019, the company reports pretax income from continuing operations of $150,500. The following information is also available pertaining to 2019:

  1. 1. The company declared and paid a $0.72 cash dividend per share on the 30,000 shares of common stock that were outstanding the entire year.
  2. 2. The company incurred a pretax $21,000 loss as a result of an earthquake, which is not unusual for the area. This is included in the $150,500 income from continuing operations.
  3. 3. The company sold Division P (a component of the company) in May. From January through May, Division P had incurred a pretax loss from operations of $33,000. A pretax gain of $15,000 was recognized on the sale of Division P.

Required:

Assuming that all the “pretax” items are subject to a 30% income tax rate:

  1. 1. Complete the lower portion of Cunningham's 2019 income statement beginning with “Pretax Income from Continuing Operations.” Include any related note to the financial statements.
  2. 2. Prepare an accompanying retained earnings statement.

1.

To determine

Prepare the lower portion of the income statement of Company C for the year ending December 31, 2019.

Explanation

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the lower portion of the income statement of Company C for the year ending December 31, 2019:

Company C
 Income Statement
For the Year Ended December 31, 2019
Particulars

Amount

($)

Amount

($)

Pre-tax income from continuing operations 150,500
Less: Income tax expense (45,150)
Income from continuing operation 105,350
   
Result from discontinued operations:  
Loss from operation of discontinued Division P(23,100) 
Gain on sale of Division P10,500 
Income from discontinuing operation(12,600)
Net income 92,750

Table (1)

Components of incomeEarnings per common share (30,000 shares)
Income from continuing operation$3.51  
Result from discontinuing operation($0.42) 
Net income $3.09

Table (2)

Working note 1: Calculate loss from discontinued operations of Division P

Loss from discontinued operations of Division P}=( (Loss from discontinued operations of Division P)(30% Loss from discontinued operations of Division P))=[$33,000($33,000×30%)]=$33,000$9,900=$23,100

Working note 2: Calculate gain on sale of division P

2.

To determine

Prepare the retained earnings statement of the Company C for the year ended December 31, 2019.

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