Assignment
I. (Retained Earnings Statement, Prior Period Adjustment)
Below is the Retained Earnings account for the year 2017 for Acadian Corp.
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Retained earnings, January 1, 2017
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$257,600
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Add:
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Gain on sale of investments (net of tax)
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$41,200
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Net income
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84,500
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Refund on litigation with government, related to the year 2014 (net of tax)
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21,600
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Recognition of income earned in 2016, but omitted from income statement in that year (net of tax)
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25,400
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172,700
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430,300
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Deduct:
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Loss on discontinued operations (net of tax)
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35,000
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Write-off of goodwill (net of tax)
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60,000
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Cumulative effect on income of prior years in changing from LIFO to FIFO inventory valuation in 2017 (net of tax)
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23,200
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Cash dividends declared
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32,000
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150,200
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Retained earnings, December 31, 2017
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$280,100
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Instructions
(a) Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income.
(b) State where the items that do not appear in the corrected retained earnings statement should be shown.
II. (Income Statement, Irregular Items)
Wade Corp. has 150,000 shares of common stock outstanding. In 2017, the company reports income from continuing operations before income tax of $1,210,000. Additional transactions not considered in the $1,210,000 are as follows.
1. In 2017, Wade Corp. sold equipment for $40,000. The machine had originally cost $80,000 and had accumulated depreciation of $30,000. The gain or loss is considered non-recurring.
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 $90,000 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes.
3. An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings.
4. The company recorded a non-recurring gain of $125,000 on the condemnation of some of its property (included in the $1,210,000).
Instructions
Analyze the above information and prepare an income statement for the year 2017, 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.)