10. Bard Company has income from continuing operations of $490,000 for the year

Question

10. Bard Company has income from continuing operations of $490,000 for the year ended December 31, 2011. It also has the following items (before considering income taxes):
(1) An extraordinary fire loss of $120,000.
(2) A gain of $60,000 on the discontinuance of a major segment.
(3) A cumulative effect of a change in accounting principle that resulted in an increase in prior years' depreciation of $50,000.

Assume all items are subject to income taxes at a 30% tax rate.

Instructions: Prepare an income statement, beginning with income from continuing operations. (worth 5 points).

Explanation / Answer

Income from Continuing Operations.........................................490,000
Discontinued Operations
Gain on Discontinued segment, net of 18,000* on income taxes....42,000
Extraordinary Item
Fire Loss, net of 36,000** on tax savings............................(84,000)
Net Income......................................................................448,000

* 60,000 * .30 = 18,000

** 120,000 * .30 = 36,000

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