The Oregon Ironworks Company had the following income statement items for the year 2004.
|
Income from continuing operations, before taxes |
$228,000 |
|
Current year loss from discontinued operations |
10,750 |
|
Gain from sale of discontinued operations |
2,750 |
|
Extraordinary loss from hurricane |
22,500 |
|
Cumulative effect from change of depreciation method |
6,000 |
|
Tax rate, applicable to all income statement items |
30% |
|
Number of shares of common stock outstanding during 2004 |
79,800 |
a. Beginning with “Income from continuing operations, before taxes,” prepare the remaining sections of the income statement.
b. Calculate earnings per common share for all sections of the income statement. The company has no preferred stock outstanding. (Note: The information about special items should be listed in the following order: discontinued operations, extraordinary items, changes in accounting method.) Explain whether each of the following would be expensed on the income statement in 2004 or in some later year, and why.
a. Inventory purchased in 2004 but sold in 2005.
b. Estimated warranty costs for goods sold in 2004; the warranty servicing will take place in 2005 and 2006.
c. Bad debts caused by 2004 sales; the actual bad receivables will not be identified until a later year.
d. Research and development costs incurred in 2004 but aimed at producing a better product in later years.