Problem T7-6AA Income statement computations and Tormat LO A [The following info

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Problem T7-6AA Income statement computations and Tormat LO A [The following information applies to the questions displayed below. Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year end December 31, 2013, follow. Credit 5 14,200 Debit a. Interest revenue $ 34,200 c. Loss on sale of equipment d. Accounts payable e. Other operating expenses 26,050 44,200 106,600 71,800 44,200 74,900 pment g. Gain from settlement of lawsuit 18,450 i. Loss from operating a discontinued segment (pretax) j. Gain on insurance recovery of tornado damage (pretax and extraordinary) k. Net sales . Depreciation expense-Buildings m. Correction of overstatement of prior year's sales (pretax) n. Gain on sale of discontinued segment's assets (pretax) o. Loss from settlement of lawsuit p. Income taxes expense q. Cost of goods sold 29,320 1,000,500o 52,200 16,200 23,950 484,500 35,000 Section Break Problem 17-6AA Income statement computations and format LO A2 value: 2.00 points Problem 17-6AA Part 1 Required: I. Assume that the company's income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the four items labeled pretax. (Loss amounts should be indicated with a minus sign.) 30% Tax Pretax Effect After-Tax Loss from operating a discontinued segment Gain on insurance recovery of tornado damage Correction of overstatement of prior year's sales Gain on sale of discontinued segment's assets

Explanation / Answer

1) Assume that the company’s income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the four items labeled pretax. (Loss amounts should be indicated with a minus sign.) Answer: Effect of income taxes (debits or losses in parentheses): Pretax 30% Tax Effect After-Tax i. Loss from operating a discontinued segment ($18,450) ($5,535) ($12,915) j. Gain on insurance recovery of tornado damage $29,320 $8,796 $20,524 m. Correction of overstatement of prior year’s sales ($16,200) ($4,860) ($11,340) n. Gain on sale of discontinued segment’s assets $35,000 $10,500 $24,500 2.1) What is the amount of income from continuing operations before income taxes? Answer: k. Net sales $10,00,500 a. Interest revenue $14,200 g. Gain from settling lawsuit $44,200 Total revenues and gains $10,58,900 q. Cost of goods sold $4,84,500 b. Depreciation expense—Equipment $34,200 l. Depreciation expense—Buildings $52,200 e. Other operating expenses $1,06,600 c. Loss on sale of equipment $26,050 o. Loss from settling lawsuit $23,950 Total expenses $7,27,500 Income from continuing operations before taxes $3,31,400 2.2) What is the amount of the income taxes expense? Answer: p. Income taxes expense (30%) $99,420 2.3) What is the amount of income from continuing operations? Answer: p. Income taxes expense (30%) $99,420 Income from continuing operations after taxes $2,31,980 3) What is the total amount of after-tax income (loss) associated with the discontinued segment? Answer: i. Loss from operating a discontinued segment (after-tax) ($12,915) n. Gain on sale of discontinued segment’s assets (after-tax) $24,500 Income from discontinued segment $11,585 4) What is the amount of income (loss) before the extraordinary items? Answer: Income from continuing oper. after taxes (from Part 4) $2,31,980 Income from discontinued segment (from Part 5) $11,585 Income before extraordinary items $2,43,565 5) What is the amount of net income for the year? Answer: Income before extraordinary items $2,43,565 j. Extraordinary item Gain on insurance recovery of tornado damage (after-tax) $20,524 Net income $2,64,089

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