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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
Never give up, never surrender.
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