Problem 17-6AA Income statement computations and format LO A2Skip to question [The following information applies to the questions displayed below.] Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31 follow. DebitCredita.Interest revenue $15,900 b.Depreciation expense—Equipment$35,900 c.Loss on sale of equipment 27,750 d.Accounts payable 45,900 e.Other operating expenses 108,300 f.Accumulated depreciation—Equipment 73,500 g.Gain from settlement of lawsuit 45,900 h.Accumulated depreciation—Buildings 178,300 i.Loss from operating a discontinued segment (pretax) 20,150 j.Gain on insurance recovery of tornado damage 31,020 k.Net sales 1,017,500 l.Depreciation expense—Buildings 53,900 m.Correction of overstatement of prior year’s sales (pretax) 17,900 n.Gain on sale of discontinued segment’s assets (pretax) 43,500 o.Loss from settlement of lawsuit 25,650 p.Income tax expense ? q.Cost of goods sold 501,500 ## Problem 17-6AA Part 1### Required:1. Assume that the company's income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the three items labeled pretax.### Table:| | **Pretax** | **30% Tax Effect** | **After-Tax** ||--------------------------------------|------------|---------------------|---------------|| **Loss from operating a discontinued segment** | | | || **Correction of overstatement of prior year’s sales** | | | || **Gain on sale of discontinued segment’s assets** | | | |### Explanation:- This table is arranged to calculate the tax effects and after-tax amounts for each scenario.- The columns include "Pretax" amounts, the "30% Tax Effect" (which represent 30% of the pretax amounts), and the resulting "After-Tax" amounts (which are the pretax amounts minus the tax effect).- The rows represent different financial items requiring tax adjustments: - Loss from operating a discontinued segment. - Correction of overstatement of prior year’s sales. - Gain on sale of a discontinued segment’s assets.

Solution:- Computation the tax effects and after tax amounts of three items labeled pretax as…

Answered: Required: 1. Assume that the company's…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 17-6AA Income statement computations and format LO A2

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[The following information applies to the questions displayed below.]

Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31 follow.

		Debit	Credit
a.	Interest revenue			$	15,900
b.	Depreciation expense—Equipment	$	35,900
c.	Loss on sale of equipment		27,750
d.	Accounts payable				45,900
e.	Other operating expenses		108,300
f.	Accumulated depreciation—Equipment				73,500
g.	Gain from settlement of lawsuit				45,900
h.	Accumulated depreciation—Buildings				178,300
i.	Loss from operating a discontinued segment (pretax)		20,150
j.	Gain on insurance recovery of tornado damage				31,020
k.	Net sales				1,017,500
l.	Depreciation expense—Buildings		53,900
m.	Correction of overstatement of prior year’s sales (pretax)		17,900
n.	Gain on sale of discontinued segment’s assets (pretax)				43,500
o.	Loss from settlement of lawsuit		25,650
p.	Income tax expense		?
q.	Cost of goods sold		501,500

## Problem 17-6AA Part 1

### Required:
1. Assume that the company's income tax rate is 30% for all items. Compute the tax effects and after-tax amounts of the three items labeled pretax.

### Table:

| | **Pretax** | **30% Tax Effect** | **After-Tax** |
|--------------------------------------|------------|---------------------|---------------|
| **Loss from operating a discontinued segment** | | | |
| **Correction of overstatement of prior year’s sales** | | | |
| **Gain on sale of discontinued segment’s assets** | | | |

### Explanation:
- This table is arranged to calculate the tax effects and after-tax amounts for each scenario.
- The columns include "Pretax" amounts, the "30% Tax Effect" (which represent 30% of the pretax amounts), and the resulting "After-Tax" amounts (which are the pretax amounts minus the tax effect).
- The rows represent different financial items requiring tax adjustments:
- Loss from operating a discontinued segment.
- Correction of overstatement of prior year’s sales.
- Gain on sale of a discontinued segment’s assets.

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