The following information is provided by Goose Corporation: 1. Prior to 2010, ta

Question

The following information is provided by Goose Corporation:

1. Prior to 2010, taxable income and pretax financial income were identical.
2. Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011.
3. On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Use the half-year convention for tax purposes).
4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2011.
5. Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable.
6. The tax rate is 35% for all periods.
7. Taxable income is expected in all future years.

INSTRUCTIONS:

Prepare the the following portion of the income statement for Goose Corporation...

Income before taxes & extraordinary item- ?

Income tax expense-
Current- ?
Deferred- ?

Income before extraordinary item- ?

Explanation / Answer

Income before income taxes $1,200,000a Income tax expense Current ($437,500 – $70,000b) $367,500 Deferred $31,500 $399,000 ----------------------------------------------------------------------- Income from continuing operations $ 801,000 Discontinued operations gain $ 200,000 Less applicable income tax $ 70,000b $130,000 ------------------------------------------------------------------------- Net income $ 931,000 a$1,400,000 pretax financial income – $200,000 discontinued operations gain = $1,200,000. b($200,000*35%)

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