Question

Required information Problem 13-6AA Income statement computations and format LO A2 The following information applies to the questions displayed below 4 Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31, 2017, follow Debit Credit a. Interest revenue b. Depreciation expense-Equipnent. c. Loss on sale of equipnent d. Accounts payable e. Other operating expenses f. Accumulated depreciation-Equipment 15,200 $ 35,200 27,0se Dok 45, 200 107,600 72,800 45,200 176,9e0 . Gain from settlement of lawsuit h. Accunulated depreciation-Buildings i. Loss from operating a discontinued segment (pretax) 1. Gain on insurance recovery of tornado danage- k. Net sales 1. Depreciation expense-Buildings m. Correction of overstatenent 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 wwt 19,45e 30,320 1,010,s00 erences 53,200 17,200 40,000 24,950 494,500 Problem 13-6 Part 1 Required: 1. Assume that the company's income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the three items

Answer 1

1) Computing the Tax Effects and After Tax Amounts of the Four Items Labeled Pre-tax:

	Pretax	30% Tax Effect	After Tax
Loss From Operating a Discontinued Segment	($19450)	($5835)	($13615)
Correction of Overstatement of prior years sales	($17,200)	($5160)	($12,040)
Gain on Sale of of Discontinued Segments Assets	$40,000	$12,000	$28000

2.a) Calculation of the Amount of Income from Continuing Operations Before Income Taxes:

k. Net sales		$1,010,500
a. Interest revenue		$15,200
g. Gain from settling lawsuit		$45,200
Total revenues and gains		$1,070,900
q. Cost of goods sold	$494,500
b. Depreciation expense - Equipment	$35,200
l. Depreciation expense - Buildings	$53,200
e. Other operating expenses	$107,600
c. Loss on sale of equipment	$27,050
o. Loss from settling lawsuit	$24,950
Total expenses		($742,500)
Income from continuing operations before taxes		$328,400

2.b) Calculation of the Amount of Income Taxes Expense:

328400 * 30 / 100 = 98520

2.c) Calculation of the Amount of Income From Continuing Operations:

Income from continuing operations before taxes	$328400
Income Tax Expense (30%)	($98520)
Income from continuing operations After Taxes	$229,880

3) Calculation of the Total Amount of After Tax Income (Loss) Associated with the Discontinued Segment:

i. Loss from operating a discontinued segment (after-tax)	($13,615)
n. Gain on sale of discontinued segment’s assets (after-tax)	$28,000
Income from discontinued segment	$14,385

4) Net income = 229880 + 14385 + 21224 = 265,489