B is corrent. Income from operations before income tax is $230,000 ($1,600,000 – $960,000 - $235,000 - $150,000 – $25,000). Income tax expense, the extraordinary gain (net of taxes) and the cumulative effect adjustment (net of taxes) must be included in the computation of net income, as illustrated below.| Income from ops. before taxes | $230,000 | | Income tax expense (30% × $230,000) | (69,000) | | Income before extraordinary items and cum. effect | 161,000 | | Loss from discontinued operation (net of $12,000 tax) | (28,000) | | Extraordinary gain (net of $3,000 tax) | 7,000 | | Net income | 140,000 |
A shortcut approach is to subtract the income statement debits ($1,410,000) from the income statement credits ($1,610,000), giving a result of $200,000. From this amount, the tax effect of $60,000 (30% × $200,000) must be subtracted, resulting in net income of $140,000.A is incorrect. Income from operations before income tax is $230,000 ($1,600,000 – $960,000 - $235,000 - $150,000 – $25,000). Income tax expense, the extraordinary gain (net of taxes) and the cumulative effect adjustment (net of taxes) must be included in the computation of net income, as illustrated below.| Income from ops. before taxes | $230,000 | | Income tax expense (30% × $230,000) | (69,000) | | Income before extraordinary items and cum. effect | 161,000 | | Loss from discontinued operation (net of $12,000 tax) | (28,000) | | Extraordinary gain (net of $3,000 tax) | 7,000 | | Net income | 140,000 |
A shortcut approach is to subtract the income statement debits ($1,410,000) from the income statement credits ($1,610,000), giving a result of $200,000. From this amount, the tax effect of $60,000 (30% × $200,000) must be subtracted, resulting in net income of $140,000. C is incorrect. Income from operations before income tax is $230,000 ($1,600,000 – $960,000 - $235,000 - $150,000 – $25,000). Income tax expense, the extraordinary gain (net of taxes) and the cumulative effect adjustment (net of taxes) must be included in the computation of net income, as illustrated below.| Income from ops. before taxes | $230,000 | | Income tax expense (30% × $230,000) | (69,000) | | Income before extraordinary items and cum. effect | 161,000 | | Loss from discontinued operation (net of $12,000 tax) | (28,000) | | Extraordinary gain (net of $3,000 tax) | 7,000 | | Net income | 140,000 |
A shortcut approach is to subtract the income statement debits ($1,410,000) from the income statement credits ($1,610,000), giving a result of $200,000. From this amount, the tax effect of $60,000 (30% × $200,000) must be subtracted, resulting in net income of $140,000. D is incorrect. Income from operations before income tax is $230,000 ($1,600,000 – $960,000 - $235,000 - $150,000 – $25,000). Income tax expense, the extraordinary gain (net of taxes) and the cumulative effect adjustment (net of taxes) must be included in the computation of net income, as illustrated below.| Income from ops. before taxes | $230,000 | | Income tax expense (30% × $230,000) | (69,000) | | Income before extraordinary items and cum. effect | 161,000 | | Loss from discontinued operation (net of $12,000 tax) | (28,000) | | Extraordinary gain (net of $3,000 tax) | 7,000 | | Net income | 140,000 |
A shortcut approach is to subtract the income statement debits ($1,410,000) from the income statement credits ($1,610,000), giving a result of $200,000. From this amount, the tax effect of $60,000 (30% × $200,000) must be subtracted, resulting in net income of $140,000. |
