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Topic
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Coffey Corp.’s trial balance of Income Statement Accounts for the year ended December 31 as follows:
Debit Credit
Net sales $ 1,600,000 (credit)
Cost of goods sold $ 960,000 (debit)
Selling expenses 235,000 (debit)
Administrative expenses 150,000 (debit)
Interest expense 25,000 (debit)
Gain on debt extinguishment 10,000 (credit)
Totals (Debit) $ 1,370,000 (Credit) $ 1,610,000
Coffey uses U.S. GAAP and has an income tax rate of 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey’s operations. Coffey prepares a multiple-step income statement.
Income from continuing operations before income tax is:
Answer from BECKER
Explanation
Choice “d” is correct. $240,000, calculated as follows:
Net sales $ 1,600,000
Cost of goods sold (960,000)
Selling expenses (235,000)
Administrative expenses (150,000)
Interest expense (25,000)
Gain on debt extinguishment 10,000
Choice “d” is correct. $240,000
The gain on debt extinguishment does not meet the unusual and infrequent criteria so it is included as part of income from continuing operations.
BEC 74
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