Question

Mountain View's activities for the year included the following:

Gross Sales	7,400,000
Cost of goods sold	3,100,000
Selling and administrative expenses	900,000
Adjustment for a prior year understatement of depreciation expense	112,000
Sales returns	71,000
Loss on operations of discontinued Segment A	411,000
Royalty income from infringement settlement	800,000
Unrealized loss on equity securities	41,000
Gain on disposal of assets of discontinued business Segment A	375,000
Extraordinary loss from hail storm	143,000
Gain on early extinguishment of convertible bonds	201,000

The company has a 30% effective income tax rate.  

What is the company's income from continuing operations for the year?

• A.

  $2,902,200

• B.

  $2,761,500

• C.

  $2,980,600

• D.

  $2,955,400

• Mountain View's activities for the year included the following:

  Gross Sales	7,400,000
  Cost of goods sold	3,100,000
  Selling and administrative expenses	900,000
  Adjustment for a prior year understatement of depreciation expense	112,000
  Sales returns	71,000
  Loss on operations of discontinued Segment A	411,000
  Royalty income from infringement settlement	800,000
  Unrealized loss on equity securities	41,000
  Gain on disposal of assets of discontinued business Segment A	375,000
  Extraordinary loss from hail storm	143,000
  Gain on early extinguishment of convertible bonds	201,000

  The company has a 30% effective income tax rate.  

  What amount would the company report on the income statement relating to the discontinued operations for the year?

• A.

  (25,200)

• B.

  (287,700)

• C.

  262,500

• D.

  (36,000)

Answer 1

Loss on operations of discontinued segment A (411,000)

Gain on disposal of assets of discontin. business

segment A 375,000

Net loss from discontinued operations (36,000)

Tax benefit of such loss (30%*36,000) 10,800

Income from discontinued operations after tax 25,200

Therefore, the correct option is (a) 25,200.