Question Details

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 2010. (Hint: This adjustment should be placed just prior to net

income.)

e. In 2010, the company settled a lawsuit against it for $10,000 pretax. The settlement was not

previously accrued and is due for payment in February 2011.

f. In 2010, 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 2010, at a loss of $90,000

pretax. The loss from operations through August was $60,000 pretax.