Question

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Problem 13-6AA Income statement computations and format LO A2 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, 2016, follow Credit S 14,000 Debit ? Interest revenue S 34,000 25,850 C. Loss on sale of equipment d. Accounts payable e. Other operating expenses 44,000 106,400 71,600 44,000 74,500 g. Gain from settlement of lawsurt i. Loss from operating a discontinued segment (pretax) j. Gain on insurance recovery of tornado damage k. Net sales 18,250 20,000 998,000 52,000 m. Correction of overstatement of prior years 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 16,000 23,250 482,500 34,000

Answer 1

Answer:

1) Tax effect and after tax effect

	Pre tax	tax effect	after tax
Loss from operating a discontinued segment	$(18,250)	$(5,475)	$(12,775)
correction of overstatement of prior year sales	$(16,000)	$(4,800)	$(11,200)
gain on sale of discontinued segment assets	$34,000	$10,200	$23,800

2.1. Amount of income for continuing operation before income taxes

Particular	Expense	Income
Net sales		998,000
Intrest Revenue		14,000
Gain from Settlement of a lawsuit		44,000
Depreciation expense- equipment	34,000
Loss on sale of equipment	25,850
Other operating expeses	106,400
depreciation expense-Building	52,000
Loss on settlement of lawsuit	23,250
COGS	482,500
Total	724,000	1,056,000
Income from continuing operation before taxes (1,076,000-724,000)		332,000

2.2 Amount of income tax expens @30%= 99,600 i.e (332,000*30%)

2.3 Income from continuint operation after taxes=332,000-99,600=$232,400

3. After tax income/ (loss) associated with discontinued segment

Gain on sale of discontinued segment assets (after tax)	$23,800
Loss from operating a discontinued segment (after tax)	$(12,775)
Income	$11,025

4. Net income of the year

Net income after continuing operation after tax	$232,400
Income of discontinued business	$11,025
Gain on insurance recovery of tornado damage (after tax)	$14,000
Net income	$257,425