At Murray Company, events and transactions during 2016 included the following. T

Question

At Murray Company, events and transactions during 2016 included the following. The tax rate for all items is 30%.

(1)   Depreciation for 2014 was found to be understated by $60,000.
(2)   A strike by the employees of a supplier resulted in a loss of $40,000.
(3)   The inventory at December 31, 2013 was overstated by $70,000.
(4)   A flood destroyed a building that had a book value of $1,000,000. Floods are very uncommon in that area.
(5)    A loss of $60,000 from sale of inventory.

            The effect of these events and transactions on 2016 income from continuing operations net of tax would be

Explanation / Answer

A strike by employees of a supplier resulted in loss of 40,000 will only change the income from continuing operations

=40,000*(1-tax )

=40000*(1-0.3)=$28,000

The income in 2016 will be less by $28,000. Rest all events not occured in 2016 so no change.

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