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.)

Step by step solution

01

Meaning of Net Income

Net income is the amount that a company contains after making the payment of all its expenses from the revenues.The settlement of expenses includes both operating and non-operating expenses.

02

Preparation of Income Statement

In the books of Wade Corporation Income Statement For the year ended December 31, 2017
Particulars	Details	Amounts ($)
Income from continuing operations before tax (1,210,000-10,000)		1,200,000
Less: Income tax @ 38%		(456,000)
Income from continuing operations after tax		744,000
Discontinued operations
Loss from discontinued subsidiary’s operation	90,000
Less: Income tax @ 38%	(34,200)
Loss from subsidiary disposal	100,000
Less: Income tax	(38,000)
Loss from discontinued operations		117,800
Income before extraordinary item		626,200
Extraordinary item
Gain on condemnation of property	125,000
Less: Tax	(50,000)	75,000
Net income		701,200
Per share earning
Income from continuing operations (744,000/150,000)		$4.96
Loss from discontinued operations (117,800/150,000)		(0.79)
Extraordinary gain (125,000/150,000)		0.50
Net income (701,200/150,000)		$4.67

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