Help with the steps/breakdown on the below problem. I understand how to solve Q1
ID: 2474194 • Letter: H
Question
Help with the steps/breakdown on the below problem. I understand how to solve Q1-3, but Q4-5 is where I'm having the problem with the calculations of extraordinary and net income. I have added and re-add and I'm still showing the wrong answer for extraordinary items and net income. I don't know what I'm missing.
Income statement computations and format LO A2
Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year end December 31, 2013, follow.
Debit Credit
a. Interest revenue $14,400
b. Depreciation expense—Equipment. $34,400
c. Loss on sale of equipment 26,250
d. Accounts payable 44,400
e. Other operating expenses 106,800
f. Accumulated depreciation—Equipment 72,000
g. Gain from settlement of lawsuit 44,400
h. Accumulated depreciation—Buildings 175,300
i. Loss from operating a discontinued segment (pretax) 18,650
j. Gain on insurance recovery of tornado damage (pretax and extraordinary) 29,520
k. Net sales 1,002,500
l. Depreciation expense—Buildings 52,400
m. Correction of overstatement of prior year’s sales (pretax) 16,400
n. Gain on sale of discontinued segment’s assets (pretax) 36,000
o. Loss from settlement of lawsuit 24,150
p. Income taxes expense ?
q. Cost of goods sold 486,500
1. Assume that the company’s income tax rate is 40% for all items. Compute the tax effects and after-tax amounts of the four items labeled pretax.
40% Tax
Pretax
Effect
After-Tax
Loss from operating a discounted segment
Gain on insurance recovery of tornado damage
Correction of overstatement of prior year's sales
Gain on sale of discounted segment's assets
2.1 What is the amount of income from continuing operations before income taxes?
Income from continuing operations before taxes
?
2.2 What is the amount of the income taxes expense?
What is the amount of the income taxes expense
?
2.3 What is the amount of income from continuing operations?
Income from continuing operations after taxes
?
3. What is the total amount of after-tax income (loss) associated with the discontinued segment?
After-tax income from discounted segment
?
4. What is the amount of income (loss) before the extraordinary items?
Income before extraordinary items
?
5. What is the amount of net income for the year?
Net income
?
40% Tax
Pretax
Effect
After-Tax
Loss from operating a discounted segment
Gain on insurance recovery of tornado damage
Correction of overstatement of prior year's sales
Gain on sale of discounted segment's assets
Explanation / Answer
(WN-1) Income Statement
Sales
1002,500
Less – Cost of Goods Sold
486,500
Gross Profit
516,000
Less: Depreciation
86,800
Less: Other Operating Expense
106,800
Income From Operation
322,400
Add: Interest Revenue
14,400
Less: Loss on sale of equipment
26,250
Income from Continuing operation before tax
310,550
Income Tax
124,220
Income From Continuing Operation After Tax
186,330
Discontinuing Operation
Loss from Operating a Discontinued segment net of tax
(11,190)
Gain on sale of discontinued segment’s assets net of tax
21,600
Income Before Extraordinary Item
196,740
Extraordinary Item
Gain on Insurance Recovery of Tornado Damage net of tax
17,712
Gain from settlement of law suit net of tax
26,640
Loss from settlement of law suit net of tax
(14,490)
Net Income
208,890
(‘1)
Particular
Pre Tax
Tax Effect
After Tax Effect
Loss from Operating a Discontinued segment
(18,650)
(7,460)
(11,190)
Gain on Insurance Recovery of Tornado Damage
29,520
11,808
17,712
Correction of Overstatement of Prior Year sales
(16,400)
(6,560)
(9,840)
Gain on sale of discontinued segment’s assets
36,000
14,400
21,600
(‘2.1) Income from Continuing operation before tax - $ 310,550
(2.2 ) Income Tax Expense- 124,220
(2.3) Income from Continuing operation after tax - $ 186,330
(‘3) After Tax Income from Discontinued Segment - $10,410
(‘4) Income before extraordinary item - $ 196,740
(‘5) Net Income- $208,890
Note – It is to be noted that prior year overstatement of sales will be adjusted in retained earnings.
Sales
1002,500
Less – Cost of Goods Sold
486,500
Gross Profit
516,000
Less: Depreciation
86,800
Less: Other Operating Expense
106,800
Income From Operation
322,400
Add: Interest Revenue
14,400
Less: Loss on sale of equipment
26,250
Income from Continuing operation before tax
310,550
Income Tax
124,220
Income From Continuing Operation After Tax
186,330
Discontinuing Operation
Loss from Operating a Discontinued segment net of tax
(11,190)
Gain on sale of discontinued segment’s assets net of tax
21,600
Income Before Extraordinary Item
196,740
Extraordinary Item
Gain on Insurance Recovery of Tornado Damage net of tax
17,712
Gain from settlement of law suit net of tax
26,640
Loss from settlement of law suit net of tax
(14,490)
Net Income
208,890
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