Question

64-Larkspur, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $224000 loss in the year of disposal. The loss on disposal of the segment was $124000. If the tax rate is 31%, and income before income taxes was $1624000,

net income is $1276000.

the losses from discontinued operations are reported net of income taxes at $348000.

the income tax expense on the income before discontinued operations is $455880.

the income from continuing operations is $1120560.

Answer 1

Correct Anser is D- 1120560

Explanation/Working

loss in the year of disposal from discontinued operations = $224000

loss from discontinued operations on disposal of the segment = $124000

Income from Continued operations before income taxes = $1624000

Tax rate = 31%

Income tax expense on the income before discontinued operations = 1624000*31% = 503440

Income from continuing operations (after tax) = $1624000*(1-31%). = $1120560

Thus option D is correct

Analysis of other options

Option C -

Income tax expense on the income before discontinued operations = 1624000*31% = 503440

OptionB -

Loss from discontinued operations = 224000+124000 = 348000

Income tax expense/saving on the income before discontinued operations = -348000*(1-31%) = 107880

losses from discontinued operations are reported net of income taxes = -348000+ 107880 = -240120

Option A -

Net Income = Income from continuing operations (after tax) +Losses from discontinued operations are reported net of income taxes = $1120560 -240120 = 880440

Thus all other options are wrong. Option D is correct