KA2e_SelfStudy_Ch13

KA2e_SelfStudy_Ch13 -...

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File: ch13, Chapter 13: Financial Statement Analysis – The Big Picture Multiple Choice 1. In reporting discontinued operations, the income statement should show in a special section: a) gains on the disposal of the discontinued component. b) losses on the disposal of the discontinued component. c) Neither a) nor b). d) Both a) and b). Ans: d Response A: When discontinued operations are reported, both gains and losses from the operations of the discontinued component and gains and losses on the disposal of the discontinued component should be shown in a special section. Response B: When discontinued operations are reported, both gains and losses from the operations of the discontinued component and gains and losses on the disposal of the discontinued component should be shown in a special section. Response C: Since answer d is correct, this answer cannot be correct. Response D: Correct! 2. Cool Stools Corporation has income before taxes of $400,000 and an extraordinary loss of $100,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of a) $325,000 and $100,000. b) $325,000 and $75,000. c) $300,000 and $100,000. d) $300,000 and $75,000. Ans: d Response A: Income before irregular items is income before taxes minus income tax expense. Income tax expense of $100,000 ($400,000 X 25%) will be subtracted from income before taxes to determine income before irregular items of $300,000 ($400,000 - $100,000). The extraordinary item is reported net of taxes of $25,000 ($100,000 X 25%) or $75,000 ($100,000 - 25,000). Response B: Income before irregular items is income before taxes minus income tax expense. Income tax expense of $100,000 ($400,000 X 25%) will be subtracted from income before taxes to determine income before irregular items of $300,000 ($400,000 - $100,000). The extraordinary item is reported net of taxes of $25,000 ($100,000 X 25%) or $75,000 ($100,000 - 25,000). Response C: Income before irregular items is income before taxes minus income tax expense. Income tax expense of $100,000 ($400,000 X 25%) will be subtracted from income before taxes to determine income before irregular items of $300,000 ($400,000 - $100,000). The extraordinary item is reported
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KA2e_SelfStudy_Ch13 -...

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