Question

Ming Company’s $114,000 income for the quarter ended September 30 included the following after-tax items:

•	$28,000 of a $56,000 extraordinary loss, realized on August 15; the other $28,000 was allocated to the fourth quarter of the year.
•	A $23,000 cumulative effect loss resulting from a change in inventory valuation method made on September 1.
•	$15,500 of the $62,000 annual property taxes paid on February 1.

For the quarter ended September 30, the amount of net income that Ming should report is

$109,000.

$86,000.

$98,500.

$137,000.

Answer 1

This problem requires knowledge of reportable net income.

All relevant data can be found in the problem.

Mathematically, the best choice for an answer is A

According the literature, a company should compute its income tax related to ordinary income at an estimated annual effective tax rate. This reflects anticipated tax credits, foreign tax rates, and tax planning activities for the year. For extraordinary gains and losses, these should be reported separate and in full in the interim period in which they occur. The cumulative loss is handled through adjustment of the retained earnings balance at the start of the year.