[binnymann]

I need help with the following question. I have included my answer as well:

Problem: Charyk Inc. reported income from continuing operations before taxes during 2008 of $1,790,000. Additional transcations occurring in 2008 but not considered in the $1,79,000 are as follows:

1. The corporation experienced an insured flood loss (extraordinary) of $80,000 during the year.
2. At the beginning of 2006, the corporation purchased a machine of $54,000 (residual value $9,000) that had a useful life of six years. The bookkeeper used straight line method of amoritzation for 2006, 2007 and 2008 but failed to deduct the residula value in calculating the amortization amount.
3. The sale of securities held as a part of its portfolio resulted in a loss of $107,000 (before taxes).
4. When its president died, the corporation gained $1,00,000 from an insurance policy. The cash srrender value of this policy had been carried on the books as an investment in the amount of $46,000 (gain is non taxable)
5. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Asuume that this trnasaction meets the criteria for discontinued operations.
6. The corporation decided to change its methd of inventory privign from average cost to the FIFO method. The effect of this change on prior years is to increase 2006 income by $60,000 abd decrease 2007 by $20,000 before taxes. The FIFO method has been used for 2008.

(a) Prepare an income statement for the year 2008 starting with income from continuing operations before taxes. Calculate earnings per share as it should be shown on the face of the income statement. There were 80,000 common shares outstnading for the year. (Assume a tax rate of 40% on all itmes, unless they are noted as being a non taxable)

(b) Assume beginning retained earnings for 2008 is $2,54,000 and that dividends of $175,000 were declared during the year. Prepare a statement of retained earnings for 2008.

Solution Charyk Inc.
Income statement
For the Year Ended 2008

Income from continuing operations $1,790,000

Other revenues and gains
Less Loss from sale of securities (107000-40% tax) (64200)
Less accumulated amortization (residual value) (1800)
(54000/6 – 54000-9000/6)*40% tax
Add Insurance gain (investment) (46000 -40% tax) 27600
Add Increase in inventory pricing 40% tax of 40,000 24,000 (14,400)

Net income before discontinued items and extraordinary items 177,5600

Loss from discontinued operations (net of tax 115000) (46,000)

Net Income before extraordinary items 172,9600

Extraordinary loss (net tax of $80,000) (32,000)
_______
Net income 1697600

Net income per common share
(1697600-175000)/80,000 19.03