(Income Statement, Irregular Items) Rap Corp. has 100,000 shares of common stock outstanding. In 2004, the company reports income from continuing operations before taxes of $1,210,000. Additional transactions not considered in the $1,210,000 are as follows.
1. In 2004, Rap Corp. sold equipment for $40,000. The machine had originally cost $80,000 and had accumulated depreciation of $36,000. The gain or loss is considered ordinary.
2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss on operations of the discontinued subsidiary was $90,000 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes.
3. In 2004, the company reviewed its accounts receivable and determined that $26,000 of accounts receivable that had been carried for years appeared unlikely to be collected.
4. An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings.
5. The company sold its only investment in common stock during the year at a gain of $145,000. The gain is taxed at a total effective rate of 40%. Assume that the transaction meets the requirements of an extraordinary item. Analyze the above information and prepare an income statement for the year 2004, starting with income from continuing operations before income taxes. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.)
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