Trayer Corporation has income from continuing operations of $287,200 for the yea

Question

Trayer Corporation has income from continuing operations of $287,200 for the year ended December 31, 2014. It also has the follow (before considering income taxes). An extraordinary loss of $76,300. A gain of S47,300 on the discontinuance of a division. A correction of an error in last year's financial statements that resulted in a $14,500 understatement of 2013 net income. Assume all items are subject to income taxes at a 28% tax rate. Prepare an income statement, beginning with income from continuing operations.

Explanation / Answer

Note: The correction of errorr for understatement of net income in year 2013 is a prior period adjustment related to accounting errors in the previous year. These errors are typically NOT reported in the income statement but are reported in retained earnings.

Trayer corporation Partial Income Statement For the Year Ended December 31, 2014 Income from Continuing Operation $ 2,87,200.00 Less: income tax @ 28% $     80,416.00 Net income from continuing operations $ 2,06,784.00 Extraordinary loss $     76,300.00 Less: Tax advantage $     21,364.00 Tax adjusted extraordinary loss $   -54,936.00 Gain from Discontinued operations $     47,300.00 Tax expense @ 28% $     13,244.00 Net gain from discontinued operations $     34,056.00 Net Income $ 1,85,904.00

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