Hey Guys can someone help me to understand a question in the Becker Review that I am getting wrong?
Kell Corp's $95,000 US GAAP net income fro the quarter ended Sept. 30 Year 1, included the following after-tax items:
~A $60,000 extraordinary gain, realized on April 30, Year 1, was allocated equally to the second, third, and fourth quarters of year 1.
~A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on Aug. 2, Year 1.
In addition, Kell paid $48,000 on February 1, year 1, for Year 1 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of Year 1.
For the quarter ended Set. 30, Year 1, Kell should report net income of:
a. $91,000
b. $103,000
c. $111,000
d. $115,000
The correct answer is (a) with this explanation:
Third quarter income as originally calculated $95,000
Less: 1/3 of second quarter extraordinary gain (20,000)
Subtotal $75,000
Plus: Cumulative effect of accounting change 16,000
Corrected third quarter net income $91,000
My problem is that I would think to take 2 quarters away for the extraordinary gain. The net income is for Sept. 30, year 1, which already includes the items listed. That makes be believe that the second and third quarters extraordinary gain were already added and that I need to remove it.
Thanks in advance for you comments.
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