Q1) Tony Rich Inc. reported income from continuing operations before taxes during 2007 of $790,000. Extra transactions occurring in 2007 but not considered in $790,000 are as follows:
1. Corporation experienced uninsured flood loss (extraordinary) in amount of $80,000 during the year. Tax rate on this item is 46%.
2. At the starting of 2005, corporation bought machine for $54,000 (salvage value of $9,000) which had useful life of 6 years. Bookkeeper used straight-line depreciation for 2005, 2006, and 2007 but failed to debut salvage value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in loss of $57,000 (pretax).
4. When its president died, corporation realized $110,000 from insurance policy. Cash surrender value of this policy had been performed on books as an investment in amount of $46,000 (the gains is nontaxable)
5. Corporation disposed of its recreational division at loss of $115,000 before taxes. Suppose that this transaction meets criteria for discontinued operations.
6. Corporation decided to change its method of inventory pricing from average cost to FIFO method. Effect of this change on prior years is to increase 2005 income by $60,000 and decrease 2006 income by $20,000 before taxes. FIFO method has been used for 2007. Tax rate on these items is 40%.
Questions:
Create the income statement for year 2007 starting with income from continuing operations before taxes. Calculate earnings per share as it must be shown on face of income statement. Common shares outstanding for year are 80,000 shares. (Suppose a tax rate of 30% on all items, unless indicated otherwise.)