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Ajax Corporation owned an uninsured building that was destroyed at a loss of $500,000 in a...

Ajax Corporation owned an uninsured building that was destroyed at a loss of $500,000 in a NJ earthquake. The corporation has a 40 per cent tax rate. Calculate the gain or loss to be added or subtracted in the Income Statement.

A. $300,000 gain

B. $500,000 loss

C. $500,000 gain

D. $300,000 loss

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Answer #1

Ajax Corporation owned an uninsured building that was destroyed at a loss of $500,000 in a NJ earthquake. The corporation has a 40 per cent tax rate.

Loss will be subtracted in the income statement after adjusting tax advantage on loss.

Hence, net loss to be subtracted = Loss amount x (1 - Tax rate)

= 500,000 x (1 - 0.4)

= $300,000

Hence, correct option is (D) i.e $300,000 loss.

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