Question

• 34. Lilly’s Boutique has two divisions: clothing and shoes. The shoes division had another good year with net sales of $80,000, cost of goods sold of $35,000, operating expenses of $10,000, and income tax expense of $5,000. The clothing division did not do as well and was sold during the year. The loss from operations and sale of the clothing division was $12,000 before taxes and $8,000 after taxes. Assuming the sale of the clothing division is reported as a discontinued operation, at what amount did Lilly’s Boutique report net income?
  • $18,000
  • $22,000
  • $30,000
  • $38,000
• 35. What is the correct order to present the following items in the income statement?

I Discontinued operations

II Income tax expense

III Net income

IV Other revenues and expenses

• • IV, II, I, III
  • IV, I, II, III
  • I, IV, II, III
  • I, II, IV, III
• 36. Other revenue and expense items are included as part of income from continuing operations.
  • true
  • False
• 37. Which of the following is not an example of an other revenue or expense item?
  • loss due to the write-down of inventory
  • loss of disposal of a major line of business
  • loss on the sale of equipment
  • Uninsured loss due to a flood

Answer 1

34. $22,000

Sales	80000
Less: Cost of goods sold	35000
Gross Profit	45000
LessL Operating Expenses	10000
Income from Continuing Operations	35000
Loss From Discontinued Operations	-8000
Income	27000
Less: Income Taxes	5000
Net Income	22000

35.

Correct Order: IV, I, II, III

IV Other revenues and expenses

I Discontinued operations

II Income tax expense

III Net income

36.

Other revenue and expense items are included as part of income from continuing operations. - TRUE

Other Income and Expenses are added to Operating Income to arrive at Income from continuing operations

37.

loss due to the write-down of inventory

Loss due due inventory write down is a loss in the value of inventory to thefy, spoilage etc. This is shown in the balance sheet as a contra asset account.