Question

How to calculate statement in

Celeste's Cookie Company

Statement of Net Income

For the Current Year Ended

Celeste's Cookie Company
Statement of Net Income
For the Current Year Ended
Sales		$2,400,000
Less:	Cost of Goods Sold	(650,000)
Gross Profit			$1,750,000

Operating Expenses:
Selling Expenses:
Selling Expenses		$39,000
Sales Salaries Expense		25,000
Advertising Expense		27,000	(91,000)
General and Administrative Expenses:
Amortization Expense—General		$22,000
Depreciation Expense—General		43,000
Office Salaries Expense		67,000
Office Supplies Expense		64,000
Legal Fees—General		9,600
Accounting Fees—Administrative		12,000	(217,600)
Operating Income			$1,441,400

Other Revenues and Gains
Gain on Disposal of Plant Assets		$80,000
Unrealized Gain on Trading Securities		45,000
Dividend Income		3,600
Interest Income		4,200	132,800
Other Expenses and Losses
Loss on Asset Impairment		$(10,400)
Interest Expense		(7,900)	(18,300)
Income From Continuing Operations Before Tax			$1,555,900
Income Tax Expense			(700,155)
Income From Continuing Operations			$855,745
Discontinued Operations
Gain on Sale of Discontinued Operations–Net of Tax			38,500
Net Income			$894,245

Explain how I can calculate the "Gain on Sale of Discontinued Operations-Net of Tax". Where did we get $38,500?

Celeste's Cookie Company

Adjusted Trial Balance (Selected Accounts)

For the Current Year Ended

Account

Debit

Credit

Common Stock (no par): Beginning Balance

$462,000

Retained Earnings: Beginning Balance

1,600,000

Accumulated Other Comprehensive Income: Beginning Balance

$73,000

Dividends

75,000

Sales

2,400,000

Interest Income

4,200

Dividend Income

3,600

Gain on Disposal of Plant Assets

80,000

Unrealized Gain on Trading Securities

45,000

Gain on Sale of Discontinued Operations-Before Tax

70,000

Unrealized Gain on Available-for-Sale Bonds-Before Tax

3,900

Cost of Goods Sold

650,000

Selling Expenses

39,000

Office Salaries Expense

67,000

Legal Fees-General

9,600

Sales Salaries Expense

25,000

Advertising Expense

27,000

Office Supplies Expense

64,000

Accounting Fees-Administrative

12,000

Amortization Expense-General

22,000

Depreciation Expense-General

43,000

Interest Expense

7,900

Loss on Asset Impairment

10,400

Answer 1

To calculate "Gain on Sale of Discounted Operations -net of tax", following things are need to be looked into

1. How Pre-tax Gain on Sale of Discounted Operations is calculated.

This is difference of Selling price and Fair value minus Transaction costs , but as it is provided in Trail balance we don't have to calculate it.

Calculation of post-tax or net of tax Gain on Sale of Discounted Operations:-

For that we first have to calculate Rate of tax, which is as follows:

=(Tax paid during year)/(Income from continuing operations before tax) x 100

= 700,155/1,555,900 x 100

=45%

Now , Gain on Sale of Discounted Operations- Before tax = $ 70,000.00

Tax @45% = $ (31,500.00)

  Gain on Sale of Discounted Operations- net of tax = $ 38,500.00