Use the information that follows concerning Palomar Corp. to answer questions 16 through 19.
Nichol Corp. has 20,000 shares of common stock outstanding. For the year ending December 31, 2009, the company tentatively reported income from continuing operations before taxes of $320,000. Nichol Corp. has a 30 percent tax rate. The additional information given below
has not
been recorded in the accounts unless specifically stated.
a.The company is located in Cheyenne, Wyoming . During the year, an earthquake destroyed some of Nichol’s assets amounting to a loss of $120,000. Earthquakes are considered infrequent in this area and are very unusual.
b. The company’s employees went on strike for six weeks in March of 2009. Revenues would have been about $23,000 more had the strike not occurred. No adjustment was recorded.
c.During 2009, the company changed its method of accounting for inventories from FIFO to weighted average. Cost of goods sold related to prior years would have been $39,000 greater.
d. The company’s accounts include $47,000 as
Unrealized Holding Gain from Trading Investments
at December 31, 2009.
16.How much should be reported on the income statement for the year ended December 31, 2009 as ‘Extraordinary Gains or Losses’?
17.Calculate how much should be reported on Nichol’s income statement as ‘Income from Continuing Operations’ for the period ended December 31, 2009.
18.How much should be reported on the income statement for the year ended December 31, 2009, as ‘Cumulative Effect of a Change in Accounting Principle’?
19.Name the specific items for which Nichol Corp. must apply intraperiod tax allocation in its financial statements.