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Problem 17-6AA Income statement computations and format LO A2

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Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31, 2017, follow.

		Debit			Credit
a.	Interest revenue				$	14,300
b.	Depreciation expense—Equipment.	$	34,300
c.	Loss on sale of equipment		26,150
d.	Accounts payable					44,300
e.	Other operating expenses		106,700
f.	Accumulated depreciation—Equipment					71,900
g.	Gain from settlement of lawsuit					44,300
h.	Accumulated depreciation—Buildings					175,100
i.	Loss from operating a discontinued segment (pretax)		18,550
j.	Gain on insurance recovery of tornado damage					29,420
k.	Net sales					1,001,500
l.	Depreciation expense—Buildings		52,300
m.	Correction of overstatement of prior year’s sales (pretax)		16,300
n.	Gain on sale of discontinued segment’s assets (pretax)					35,500
o.	Loss from settlement of lawsuit		24,050
p.	Income taxes expense		?
q.	Cost of goods sold		485,500

Problem 17-6 Part 1

Required:
1. Assume that the company’s income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the three items labeled pretax.

	Pretax 30% Tax Effect After-Tax Loss from operating a discontinued segment Correction of overstatement of prior year’s sales Gain on sale of discontinued segment’s assets

Problem 17-6 Part 2

2a. What is the amount of income from continuing operations before income taxes?
2b. What is the amount of the income taxes expense?
2c. What is the amount of income from continuing operations?

What is the amount of income from continuing operations before income taxes?

Income from continuing operations before taxes What is the amount of the income taxes expense? Income taxes expense What is the amount of income from continuing operations? Income from continuing operations after taxes Problem 17-6 Part 3 3. What is the total amount of after-tax income (loss) associated with the discontinued segment? After-tax income from discontinued segment Problem 17-6 Part 4 4. What is the amount of net income for the year? Net income

Answer 1

	Pretax	30% Tax Effect	After Tax
Loss from operating a discontinued segment	-18,550.00	-5,565.00	-24,115.00
Correction of overstatement of prior year’s sales	16,300.00	-4,890.00	11,410.00
Gain on sale of discontinued segment’s assets	35,500.00	10,650.00	46,150.00
2a. income from continuing operations before income taxes
Loss from operating a discontinued segment	18,550.00
Gain on sale of discontinued segment’s assets	35,500.00
Income from continuing operations before income taxes	16,950.00
2b. What is the amount of the income taxes expense?
Income taxes expense	1,08,351.00
	Debit
Interest revenue	-14,300.00
Depreciation expense—Equipment.	34,300.00
Loss on sale of equipment	26,150.00
Other operating expenses	1,06,700.00
Gain from settlement of lawsuit	-44,300.00
Gain on insurance recovery of tornado damage	-29,420.00
Net sales	-10,01,500.00
Depreciation expense—Buildings	52,300.00
Correction of overstatement of prior year’s sales (pretax)	16,300.00
Loss from settlement of lawsuit	24,050.00
Cost of goods sold	4,85,500.00
Profit from continuieng Opertions	-3,44,220.00
Loss from operating a discontinued segment (pretax)	18,550.00
Gain on sale of discontinued segment’s assets (pretax)	-35,500.00
Profit Before Tax	-3,61,170.00
Income taxes expense	1,08,351.00
Net Income	-2,52,819.00
2c. What is the amount of income from continuing operations?
Income from continuing operations	2,40,954.00
Income from continuing operations before income taxes?	3,44,220.00
What is the total amount of after-tax income (loss) associated with the discontinued segment?
Loss from operating a discontinued segment	18,550.00
Gain on sale of discontinued segment’s assets	35,500.00
Income from continuing operations before income taxes	16,950.00
Income Tax	5,085.00
Income from continuing operations after tax	11,865.00
What is the amount of net income for the year?
Net Income	-2,52,819.00