Question

Question 2 Part A and B

A. Major Co. reported 2018 income of $314,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $65,000. All income is subject to a 36% tax rate. In the income statement for the year ended December 31, 2018, Major Co. would show the following line-item amounts for income tax expense and net income:

Multiple Choice

• $89,640 and $200,960 respectively.

• $113,040 and $159,360 respectively.

• $89,640 and $379,000 respectively.

• $113,040 and $249,000 respectively.

Misty Company reported the following before-tax items during the current year:

Sales revenue	$	620
Selling and administrative expenses		270
Restructuring charges		20
Loss on discontinued operations		50

B. Misty's effective tax rate is 20%.

What is Misty's income from continuing operations?

Multiple Choice

• $264.

• $250.

• $330.

• $380.

Answer 1

A) Answer is b). $113,040 and $159,360 respectively.

Calculation of Income tax expense and Net Income:

Loss on discontinued operations (net of tax) = $65,000 * (1 - 0.36) = $41,600

Hence answer is b). $113,040 and $159,360 respectively.

B). Answer is a). $264.

Calculation of Income from Continuing operations: