Question

Arreaga Corp had a 20 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement?

                  Sales revenue         $1,000,000

                  Cost of goods sold       $600,000

                  Salaries and wages expense        $80,000

                  Depreciation expense    $110,000

                  Dividend revenue   $90,000

                  Utilities expense      $10,000

                  Discontinued operations loss (net of taxes) $100,000

                  Interest expense     $20,000

Select one:
a. $16,000
b. $36,000
c. $34,000
d. $54,000

Answer 1

Income tax expense on the face of income statement is

d). $ 54,000

kindly refer to the working below:

• computation of income tax expense in income statement:

particulars. Amount($)

Sales. 1,000,000

Less: cost of goods sold. (600,000)

Gross profit. 400,000

Add: other income:

Dividend income. 90,000

Less:Administrative and general expenses:

Salaries and wages. (80,000)

Utilities expense. (10,000)

Depreciation expense. (110,000)

Less: Finance costs-interest expense. (20,000)

Income before taxes. 270,000   

Income tax expense @20%. 54,000

Net operating income from

Continuing operations. 216,000

• loss from discontinuing operations($100,000) is not taken for the purpose of computing income tax expense. It is directlt deducted from net operating income after taxes
• Hence, income tax expense is $54,000