Start Corp. had income from continuing operations of $600,000 (after taxes) in 2020. In addition, the following

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Question:

Start Corp. had income from continuing operations of $600,000 (after taxes) in 2020. In addition, the following information, which has not been considered, is provided.

1. A machine used in normal operations was sold for $150,000 cash during the year. The machine originally cost $820,000 and had accumulated depreciation of $725,000 at the time of sale. (Depreciation has been properly recorded through the date of sale.) The company often sells machinery of this type.

2. Start decided to discontinue its stereo division in 2020. The stereo division is a major component of Start’s operations and the decision to discontinue the segment represents a strategic shift in operating strategy. During the current year, the loss on the disposal of the segment of the business was $135,000 before applicable taxes.

3. During 2020 the company’s warehouse was destroyed by an earthquake. There had never been an earthquake in the area where the company operates prior to 2020 and geologists doubt there will be another for at least 500 years. Since the warehouse was insured, the company ended up with a gain from the destruction from the earthquake of $138,000 after income taxes.

4. In 2020, Start decided to adopt the FIFO cost flow assumption in accounting for inventory after computing the $600,000 amount noted above. Start was using the average cost method. The change decreases income for 2020 by $40,000 (pre-tax) and the cumulative effect of the change on prior years' income was a $200,000 (pre-tax) decrease.

5. Start purchased a machine in 2019 for $200,000. The machine had an estimated salvage value of $20,000 and an estimated useful life of 15 years. However, in computing depreciation for 2019 and 2020 the accountant inadvertently used an estimated life of 10 years.

INSTRUCTIONS (USING EXCEL- complete the following)

1. Prepare the journal entry that would be required to record item 1 above. If no journal entry is required write “no entry required.”

2. Present in good form the income statement of Start Corp. for 2020 starting with "Income from continuing operations before income taxes." Assume that Start's tax rate is 21% and 90,000 shares of common stock were outstanding during the year. Dividends declared and paid on the common stock for the year was $32,000.