Reference no: EM132992325

FACTS: Vanpop Inc. reported income from continuing operations before taxes during 20Y4 of $430,000. Additional transactions occurring during 20Y4, but not included in the $430,000 are as follows:

1. At the beginning of 20Y2, the corporation purchased equipment for $74,000 (salvage value of $14,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 20Y2, 20Y3, and 20Y4 but incorrectly used a 10-year useful life in determining the deprecation amount.

2. A severe storm with torrential rains destroyed an onsite warehouse due to flooding. This resulted in an unusual pre-tax loss of $15,000.

3. Vanpop disposed of its consumer division during 20Y4. The division generated a $155,000 pre-tax loss on operations during the year but provided a $230,000 pre-tax gain on disposal. Assume that this transaction meets the criteria for discontinued operations.

4. The corporation decided to change its cost flow method of inventory from average cost to the FIFO method. The effect of this change on prior years is to increase 20Y2 income by $86,000 and increase 20Y3 income by $65,000 before taxes. The FIFO method was used for 20Y4.

Question 1: Determine which of the transactions above would require an above the line adjustment on Vanpop's 20Y4 Income Statement and show the calculation to determine adjusted Income from Continuing Operations Before Tax.

Question 2: Prepare a partial income statement for 20Y4 starting with Income from Continuing Operations Before Tax, adjusted for any above the line changes (Hint: You calculated this in Requirement 1). Assume a tax rate of 30%.