Question

Problem 17-6AA Income statement computations and format LO A2

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Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31 follow.

		Debit			Credit
a.	Interest revenue				$	14,100
b.	Depreciation expense—Equipment	$	34,100
c.	Loss on sale of equipment		25,950
d.	Accounts payable					44,100
e.	Other operating expenses		106,500
f.	Accumulated depreciation—Equipment					71,700
g.	Gain from settlement of lawsuit					44,100
h.	Accumulated depreciation—Buildings					174,700
i.	Loss from operating a discontinued segment (pretax)		18,350
j.	Gain on insurance recovery of tornado damage					29,220
k.	Net sales					999,500
l.	Depreciation expense—Buildings		52,100
m.	Correction of overstatement of prior year’s sales (pretax)		16,100
n.	Gain on sale of discontinued segment’s assets (pretax)					34,500
o.	Loss from settlement of lawsuit		23,850
p.	Income tax expense		?
q.	Cost of goods sold		483,500

Problem 17-6AA Part 2

Assume that the company’s income tax rate is 40% for all items. Compute the tax effects and after-tax amounts of the three items labeled pretax.

2a. What is the amount of income from continuing operations before income taxes?
2b. What is the amount of the income tax expense?
2c. What is the amount of income from continuing operations?

income from continuing operations before taxes is not 323,300 or 331,700 already tried those

Answer 1

Working:

Income Statement
Net sales		999500
Cost of goods sold		483500
Gross profit		516000
Operating expenses:
Depreciation expense-equipment	34100
Depreciation expense-building	52100
Other operating expenses	106500
Total operating expenses		192700
Income from operations		323300
Other incomes and expenses:
Interest revenue	14100
Gain from settlement of lawsuit	44100
Gain on insurance recovery of tornado damage	29220
Loss on sale of equipment	-25950
Loss from settlement of lawsuit	-23850
Net other income		37620
Income from continuing operations before income taxes		360920
Income tax expense (40% x $360920)		144368
Income from continuing operations		216552
Discontinued operations:
Loss from operating a discontinued segment	-18350
Gain on sale of discontinued segment's assets	34500
Income (loss) on discontinued operations		16150
Income tax benefit (expense) [40% x $16150]		-6460
Income (loss) from discontinued operations		9690
Net income		226242

1.

	Pretax	40% Tax Effect	After-Tax
Loss from operating a discontinued segment	-18350	7340	-11010
Correction of overstatement of prior year's sales	-16100	6440	-9660
Gain on sale of discontinued segment's assets	34500	-13800	20700

2.

2a.	Income from continuing operations before income taxes	360920
2b.	Income tax expense	144368
2c.	Income from continuing operations	216552