Question

For its fiscal year ending October 31, 2018, Haas Corporation reports the following partial data shown below.

Income before income taxes 540,000

Income tax expense (20%x420,000) 84,000

Income from continuing operations 456,000

Loss on discontinued operations 120,000

Net income 336,000

The loss on discontinued operations was comprised of a $50,000 loss from operations and a $70,000 loss from disposal. The income tax rate is 20% on all item.

(a) Prepare a correct statement of comprehensive beginning with income before income taxes.

Partial Statement of Comprehensive Income

Income before income taxes ___

Income tax expense ___

Net income ___

Discontinued Operations

Loss from operations, net of $10,000, income tax savings ____

Loss on Disposal, net of $14,000, income tax savings ___

Net income ___

(b) Explain why the income statement date are misleading.

Answer 1

a.

Income before income tax		540000
Income tax expense @ 20%		108000
Income from continued operations		432000
Discontinued operations
Loss from operations (50000 - 20%)	40000
Loss on disposal (70000 - 20%)	56000	96000
Net income (loss)		336000

b. The data is misleading because the loss from discontinued operation is clubbed along with the income from continued operations.