Question :
At the starting of its 2010 calendar-year accounting period, ABC, Inc. had retained earnings of $1,500,000. Through 2010, ABC reported income from continuing operations before taxes of $400,000. The subsequent additional transactions occurred in 2010 but were not added in the $400,000. Consider all of the subsequent were material.
At the starting of 2008, the company purchased a machine for $10,000 that they expensed during 2008. The company would usually have used the straight-line depreciation method with a $1,000 salvage value and 10 year useful life. This was discovered as the accountant was reviewing the information for the 2010 financial statements. Depreciation expense on this machine for 2010 was not added in the $400,000 above.
2. ABC had a profit on sale of a plant asset of $5,000 (pre-tax).
3. ABC had an uninsured flood loss of $50,000 (pre-tax) which was considered to be unexpected.
4. ABC declared and paid cash dividends of $100,000 on its general stock.
a) State the correct value to be shown on the 2010 Income Statement for the sub-total, "Income From Continuing Operations before Taxes."
$___________________________
b) Prepare an income statement for the year 2010, starting with Income from Continuing Operations before Taxes (part a). Consider the tax rate was 40%.