The following question is based on the following:
Vane Co.'s trial balance of income statement accounts for the year ended December 31, Year 1, included the following:
Debit Credit
Sales $ 575,000
Cost of sales $ 240,000
Administrative expenses 70,000
Loss on sale of equipment 10,000
Sales commissions 50,000
Interest revenue 25,000
Freight out 15,000
Loss on early retirement of long-term debt (unusual & infrequent item) 20,000
Uncollectible accounts expense 15,000
Total $ 420,000 $ 600,000
Other information
Finished goods inventory:
January 1, Year 1
$400,000
December 31, Year 1
$360,000
Vane's income tax rate is 30%.
In Vane's Year 1 multiple-step income statement, what amount should Vane report as income from continuing operations?
a.
$129,500
b.
$140,000
c.
$147,000
d.
$126,000
Explanation
Choice “b” is correct, $140,000.
Net of credits over debits ($600-420) $ 180,000
add: extraordinary item – loss on early retirement of long-term debt 20,000
Income from continuing operations 200,000
“Net of tax” rate (100%-30% tax) x 70%
Income after income taxes from continuing operations $ 140,000
Choice “d” is incorrect. The $20,000 loss on the early retirement of long-term debt is an extraordinary item that will be reported after income from continuing operations. It should not be included in income from continuing operations.
Choice “a” is incorrect. The interest revenue of $25,000 and the $10,000 loss on the sale of equipment should be included in income from continuing operations.
Choice “c” is incorrect. The $10,000 loss on the sale of equipment is not an extraordinary item and should be included in income from continuing operations.
Becker question. I am a confused here. I got the answer right – $140,000 but i didnt count Loss on sale of equipment (-$10,000), Interest revenue (+$25,000), and Uncollectible accounts expense (-$15,000). Seems like i should have???
Thanks.
.