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For the year ending December 31, 2013, Micron Corporationhad income from continuing operations before taxes of $1,200,000 before considering the followingtransactions and events. All of the items described below are before taxes and the amounts should beconsidered material.,1. During 2013, one of Micron’s factories was damaged in anearthquake. As a result, the firm recognized a loss of $800,000. The event is consideredunusual and infrequent.,2. In November 2013, Micron sold its Waffle House restaurantchain that qualified as a component of an entity. The company had adopted a plan to sell the chain inMay 2013. The income from operations of the chain from January 1, 2013, through November was$160,000 and the loss on sale of the chain’s assets was $300,000.,3. In 2013, Micron sold one of its six factories for$1,200,000. At the time of the sale, the factory had a carrying value of $1,100,000. The factory was not considereda component of the entity.,4. In 2011, Micron’s accountant omitted the annualadjustment for patent amortization expense of $120,000. The error was not discovered until December 2013., ,Required:,1. Prepare Micron’s income statement, beginning with incomefrom continuing operations before taxes, for the year ended December 31, 2013. Assume an income taxrate of 30%. Ignore EPS disclosures.(Amounts to be deducted should be indicated with a minussign.),2. Select themotivation for segregating certain income statement events from income fromcontinuing operations.,The Diversified Portfolio Corporation provides investmentadvice to customers. A condensed income statement for the year ended December31, 2013, appears below:, ,Service revenue,$,900,000,Operating expenses,700,000,Income before income taxes,200,000,Income tax expense,80,000,Net income,$,120,000,The following balance sheet information also is available:, ,12/31/13,12/31/12,Cash,$,275,000,$,70,000 ,Accounts receivable,120,000 ,100,000,Accounts payable (operating expenses),70,000 ,60,000 ,Income taxes payable,10,000 ,15,000,In addition, the following transactions took place duringthe year:,1. Common stock was issued for $100,000 in cash.,2. Long-term investments were sold for $50,000 in cash. Theoriginal cost of the investments also was $50,000.,3. $80,000 in cash dividends was paid to shareholders.,4. The company has no outstanding debt, other than thosepayables listed above.,5. Operating expenses include $30,000 in depreciationexpense.,Required:,1. Prepare a statement of cash flows for 2013 for theDiversified Portfolio Corporation. Use the direct method for reporting operating activities.,2. Prepare the cashflows from operating activities section of Diversified’s 2013 statement of cashflows using the indirect method.


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