Question 3:At the beginning of its 2013 calendar-year accounting period, Commet, Inc. had retained earnings of $6,500,000. During 2013, Commet reported income from continuing operations before taxes of $1,100,000. The following additional transactions occurred in 2013 but were not included in the $1,100,000. Assume all of the following were material.
1. Commet had a restructuring charge of $16,000 (pre-tax).
2. Commet had an uninsured flood loss of $20,000 (pre-tax) which was considered to be both unusual and infrequent.
3. During 2013, Commet decided to sell an unprofitable segment of its business. The sale of this segment qualifies as a discontinued operation for financial reporting purposes.However, at the end of 2013, the company had yet to sell the segment. On December 31, 2013 the segment assets had a fair value minus anticipated costs to sell of$3,700,000 and a book value of $4,200,000. For the year, the segment reported an operating loss of $500,000.
4. Commet declared and paid cash dividends of $70,000 on its common stock.
5. At the beginning of 2010, the company purchased a machine for $50,000 that they expensed during 2010. The company would normally have used the straight-line depreciation method with a $500 salvage value and 9 year useful life. This was discovered as the accountant was reviewing the information for the 2013 financial statements. Depreciation expense on this machine for 2013 was not included in the$1,100,000 above.
a. Prepare an income statement for the year 2013, beginning with Income from Continuing Operations before Taxes. Assume the tax rate was 40%.
b. What is the ending Retained Earnings balance for Commet, Inc. as of December 31,2013?