• Wordcount: 1,500 words maximum
  • Cover, Table of Contents, References and Appendix are excluded of the total wordcount.
  • Font: Arial 12,5 pts.
  • Text alignment: Justified.
  • The in-text References and the Bibliography have to be in Harvard’s citation style.

It assesses the following learning outcomes:

  • Outcome 1: Critically understand the different sections of the income statement.
  • Outcome 2: Understand the different classes of stocks
  • Outcome 3: Critically understand the effects of changes in accounting estimates.

 Exercise 2:

Jim holds 10% of the capital of Private Holding Inc., a company dedicated to Real Estate investments.  

In order to make an investment in a new project, the company issued on 1st of January 2020 1,000 11% cumulative preferred stocks of $1,000 face value

The company also provided some financial services to clients but decided to sell this segment to Happy Financing Ltd on February 21st 2020.

During the year 2020, Private Holding Inc. obtained a net income from continuing operations of $1,275,000 once deducted the 30% Corporate Income tax

The losses before taxes generated by operating the segment until February 21st 2020 were $75,000. The segment was sold for $100,000, implying a gain before taxes of $32,000 for Private Holding Inc.

In June 2020, a tornado destroyed several apartments held by Private Holding Inc. in the Caribbean, causing a loss before taxes of $1,090,000.

During the year 2020, the company had 150,000 shares of common stock outstanding

  1. Prepare an income statement of Private Holding Inc. for the year 2020, including ne income from continuing operations, discontinued operations, disposal of the segment and extraordinary events. Explain your calculations. 40 points
  2. Calculate the earnings per share of common stocks. Explain your calculations. 30 points
  3. In January 2020, the accountant of the company considered that the useful life of the IT equipment should be lowered from 8 to 6 years. The equipment was purchased on January 1, 2019 for $32,000, with no salvage value.  What is the effect of this change in estimates on the net income of the company? Explain your answer and calculations. 30 points