Question 2 (20 points) Blue Ray Corporation reported Income from continuing operations (before income tax) of $340,000, for the year ended Dec. 31, 2017. The following items were not considered: Item 1. An internal audit discovered an error created to amortization expense. Amortization expense for a patent was understated by $ 13,000 in 2016, and $ 15,000 in 2017 ORE X The corporation discontinued operations in its calculators manufacturing division on 1/9/2017. It has incurred a loss of $ 55,000 (before tax) for operating the division in 2017. The book value of the division's assets was $ 310,000, and it was sold for $ 400,000 to a local competitor. 3Poco gooo & Grain on sode ainsi 613000 3. A brief employee strike took place in March 2017, causing a loss of $ 62,000 (before tax). Lunsual loss In 2017, the corporation decided to change from Average Cost method to FIFO method in accounting for its inventory. The new method was applied on the 2017 accounts. However, the effect of this change on prior years was to increase income by $ 55,000 in 2015, and decrease it by $ 31,000 in 2016 (before tax). 4 RE 5. The company booked a gain on selling part of its financial portfolio, amounting to $ 15,500 (before tax). Other Gains 6. A loss of S 60,000 caused by a fire in one of its offices was compensated for by the insurance company for $ 100,000. (Assume this gain is nontaxable). Gain yoo In addition, the company had 80,000 common shares outstanding throughout 2017. Its Retained Earnings balance on 1 January 2017 was $ 265,000. The company declared and paid S 50,000 in dividends during 2017. The applicable tax rate is 30%. Question 2 (20 points) Blue Ray Corporation reported Income from continuing operations (before income tax) of $340,000, for the year ended Dec. 31, 2017. The following items were not considered: Item 1. An internal audit discovered an error created to amortization expense. Amortization expense for a patent was understated by $ 13,000 in 2016, and $ 15,000 in 2017 ORE X The corporation discontinued operations in its calculators manufacturing division on 1/9/2017. It has incurred a loss of $ 55,000 (before tax) for operating the division in 2017. The book value of the division's assets was $ 310,000, and it was sold for $ 400,000 to a local competitor. 3Poco gooo & Grain on sode ainsi 613000 3. A brief employee strike took place in March 2017, causing a loss of $ 62,000 (before tax). Lunsual loss In 2017, the corporation decided to change from Average Cost method to FIFO method in accounting for its inventory. The new method was applied on the 2017 accounts. However, the effect of this change on prior years was to increase income by $ 55,000 in 2015, and decrease it by $ 31,000 in 2016 (before tax). 4 RE 5. The company booked a gain on selling part of its financial portfolio, amounting to $ 15,500 (before tax). Other Gains 6. A loss of S 60,000 caused by a fire in one of its offices was compensated for by the insurance company for $ 100,000. (Assume this gain is nontaxable). Gain yoo In addition, the company had 80,000 common shares outstanding throughout 2017. Its Retained Earnings balance on 1 January 2017 was $ 265,000. The company declared and paid S 50,000 in dividends during 2017. The applicable tax rate is 30%
