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

Events/transactions Effect on profits 1. Depreciation understated +60,000 2. Loss due to strike by employees of supplier - 40,000 3. Overstated inventory +70,000 4. Extraordinary loss -1000,000 5. loss from sale of inventory -60,000 Net effect -970,000 tax @ 30% 291,000 Net effect -679,000

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