Reference no: EM132512003

FGH Corporation has the following information about 2020 (all numbers are given pre-tax):

1. Recorded a $16,000 gain on the sale of a piece of manufacturing equipment
2. Sales revenue for continuing operations was $170,000
3. Operating expenses for continuing operations was $71,000
4. A hurricane wiped out the storage warehouse resulting in an uninsured loss of $100,000
5. Sold a discontinued component of the business for a loss of $23,000
6. The discontinued component reported operating income of $13,000 prior to being sold
7. Equity securities were sold for a realized loss of $4,000
8. Unrealized gains on available-for-sale debt securities were $8,000

Question 1: Which of the following statements is true? Assume a 25% tax rate.

1. Net income from continuing operations is $11,250.
2. Income from continuing operations (pre-tax) is $95,000.
3. Income tax expense is $250.
4. Net income is $6,750.
5. Net income is $9,000.
6. None of the other answer choices is correct.
7. Net income from continuing operations is $8,250.

GHI Industries discovers the following pre-tax errors after preparing its 2019 financial statements:

1. 2017 depreciation expense was overstated by $2,000
2. 2018 sales revenue was overstated by $5,000
3. 2019 rent expense was understated by $6,000
4. Prior to recording any corrections, 2019 net income was calculated to be $100,000 and 2018 ending retained earnings was $300,000. GHI presents one-year on the face of its financial statements. GHI has a 20% income tax rate in all years. No dividends have ever been declared.

Question 2: What should be reported as correct 2019 ending retained earnings on the 2019 balance sheet?