Maulder Corporation has
income from continuing operations of $290,000 for the year ended December 31,
2014. It also has the following items (before considering income taxes).
1. An extraordinary loss of
$70,000.
2. A gain of $35,000 on the
discontinuance of a division.
3. A correction of an error
in last year’s financial statements that resulted in a $25,000 understatement
of 2013 net income.
Assume all items are subject
to income taxes at a 30% tax rate.
Instructions
(a) Prepare an income
statement, beginning with income from continuing operations.
(b) Indicate the statement
presentation of any item not included in (a) above.
(a) MAULDER
CORPORATION
Partial
Income Statement
For
the Year Ended December 31, 2014
Income from continuing operations................................................................... $290,000
Discontinued operations
Gain on discontinued division,
net of $10,500
income taxes.........................................................................................
24,500
Income before extraordinary item....................................................................... 314,500
Extraordinary item
Extraordinary loss, net of $21,000 income tax saving..........................
(49,000)
Net income............................................................................................................. $265,500
(b) The correction of an error in last
year’s financial statements is a prior period
adjustment. The correction is reported in the 2014 retained earnings statement as an adjustment that increases the
reported beginning balance of retained earnings by $17,500, or [$25,000
– ($25,000 X 30%)].
