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Simulation on calculating net income (Wiley 2013, FAR, Page 182, Simulation 13)
Rap Corp. has 100,000 shares of common stock outstanding. In 2004, the company reports income from continuing operations before taxes of $1,210,000.
Additional transactions not considered in the $1,210,000 are a follows.
In 2004, Rap Corp. sold equipment for $40,000. The machine had originally cost $80,000 and had accumulated depreciation of $36,000. The gain or loss is considered ordinary.
The company discontinued operations of one of its subsidiaries during the current year at a loss of $190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss of operations of the discontinued subsidiary was $90,000 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes.
In 2004, the company reviewed its accounts receivable and determined that $26,000 of accounts receivable that had been carried for years appeared unlikely to be collected.
An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings.
The company sold its only investment in common stock during the year at a gain of $145,000. The gain is taxed at a total effective rate of 40%. Assume that the transaction meets the requirements of an extraordinary item.
When i go through the answer of this simulation it says Income from continuing operations before income tax is 1,180,000
Can anyone tell me how to come up with this amount?
Rhea
Yaeger CPA Review
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