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Prepare and Income statement and compute earnings per share

You were recently hired as the assistant treasurer for Victor, Inc. Yesterday, the treasurer was injured in a bicycle accident and is now hospitalized, unconscious. Your boss, Mr. Fernandes, just informed you that the financial statements are due today. Searching through the treasurer's desk, you find the following notes:

a. Income from continuing operations, based on computations done so far, is $400,000. No taxes are accounted for yet. The tax rate is 30%.
b. Dividends declared and paid were $20,000. During the year, 100,000 shares of stock were outstanding.
c. The corporation experienced an uninsured $20,000 pretax loss from a freak hailstorm. Such a storm is considered to be unusual and infrequent.
d. The company decided to change its inventory pricing method from average cost to the FIFO method. The effect of this change is to increase prior years' income by $30,000 pretax. The FIFO method has been used for 2008. (Hint: This adjustment should be placed just prior to net income.)
e. In 2008, the company settled a lawsuit against it for $10,000 pretax. The settlement was not previously accrued and is due for payment in February 2009.
f. In 2008, the firm sold a portion of its long-term securities at a gain of $30,000 pretax.
g. The corporation disposed of its consumer products division in August 2008, at a loss of $90,000 pretax. The loss from operations through August was $60,000 pretax.


Prepare an income statement for 2008, in good form, starting with income from continuing operations. Compute earnings per share for income from continuing operations, discontinued operations, extraordinary loss, cumulative effect of a change in accounting principle, and net income.

Solution Preview

See the attached Excel file.

Solution (Multiple step income statement) is provided as follows.

Operating Income from continuing operations: $400,000
Other Revenues & Gains:
Capital gain from sale of long term securities pretax $30,000
Other expenses & lossses
Loss from settlement of lawsuit pretax -$10,000
Income from continuing operation before tax $420,000
Less: Income tax expenses at 30% $126,000
Income from continuing operations after tax ...

Solution Summary

The expert prepares income statements and compute earnings per share.