Edmonds Inc. reported income from continuing operations before taxes during 2012 of $790,000. Additional transactions occurring in 2012 but not considered in the $790,000 are as follows:

1.The corporation experienced an uninsured flood loss in the amount $90,000 during the year. The event was considered unusual and infrequent.

2.At the beginning of 2010, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2010, 2011 but failed to deduct the salvage value in computing the depreciation base. Depreciation was recorded correctly in 2012. SHOW ADJUSTMENT NET OF TAX

3.The corporation disposed of its recreational division. The division had an operating loss of $115,000 before taxes. The assets of the division were sold for $1,200,000. The assets had a cost of $2,000,000 and $800,000 of accumulated depreciation at the time of the sale. Assume that this transaction meets the criteria for discontinued operations.

4.The corporations has AFS securities which the fair value decreased $57,000. Assume these securities are tax exempt and held at fair value.

Other Information:

The tax rate is 30%.

Beginning retained earnings is $100,000 (credit balance).

Beginning Accumulated OCI is $10,000 (credit balance)

Weighted average common shares outstanding for 2012 is 100,000.

A $20,000 preferred dividend was declared and paid.

A $30,000 common dividend was declared and paid.

What affect did the decrease in fair value of AFS securities have on net income? on stockholder's equity?

a. decrease net income 57,000; decrease SE 57,000

b. no effect on net income; decrease SE 57,000

c. decrease net income 57,000; no effect on SE

d. none of the above