Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31 follow. Assume that the company’s income tax rate is 40% for all items. DebitCredita.Interest revenue $ 14,400b.Depreciation expense—Equipment$ 34,400 c.Loss on sale of equipment26,250 d.Accounts payable 44,400e.Other operating expenses106,800 f.Accumulated depreciation—Equipment 72,000g.Gain from settlement of lawsuit 44,400h.Accumulated depreciation—Buildings 175,300i.Loss from operating a discontinued segment (pretax)18,650 j.Gain on insurance recovery of tornado damage 29,520k.Net sales 1,002,500l.Depreciation expense—Buildings52,400 m.Correction of overstatement of prior year’s sales (pretax)16,400 n.Gain on sale of discontinued segment’s assets (pretax) 36,000o.Loss from settlement of lawsuit24,150 p.Income tax expense? q.Cost of goods sold486,500 Required:1. Compute the tax effects and after-tax amounts of the three items labeled pretax. ### Financial Reporting TableThis table presents financial data related to a discontinued business segment and includes columns for pre-tax values, tax effects, and after-tax values.| Description | Pretax | 40% 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- **Columns:** - **Pretax:** Represents the financial figures before tax considerations. - **40% Tax Effect:** Shows the impact of a 40% tax rate on the pre-tax figures. - **After-Tax:** Presents the final values after accounting for the tax effect.- **Rows:** - **Loss from operating a discontinued segment:** Details the losses incurred from continuing operations that have now been discontinued. - **Correction of overstatement of prior year’s sales:** Adjustments made to rectify any overstatements in sales from the previous year. - **Gain on sale of discontinued segment’s assets:** Denotes the financial gain achieved from selling the assets of the discontinued segment. This structured format can assist learners and professionals in analyzing financial adjustments related to discontinued operations.

We need to compute the tax effect and the after-tax amount of the three items labeled pretax. We solve these with respect to the requirements of the question, so we can solve these just by multiplying the tax rate with the particular transactions. Computation of the tax effects and after-tax amounts of three items leveled pretax: Particulars Pretax $ (a) Tax effect $ 40% of (a) = (b) After-tax $ (a + b) = (c) Loss from operating a discontinued segment (18650) (7460) (26110) Correction of overstatement of the prior year's sales (16400) (6560) (22960) Gain on sale of discontinued segment's asset 36000 (14400) 21600

Answered: Selected account balances from the…

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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		Debit	Credit
a.	Interest revenue		$ 14,400
b.	Depreciation expense—Equipment	$ 34,400
c.	Loss on sale of equipment	26,250
d.	Accounts payable		44,400
e.	Other operating expenses	106,800
f.	Accumulated depreciation—Equipment		72,000
g.	Gain from settlement of lawsuit		44,400
h.	Accumulated depreciation—Buildings		175,300
i.	Loss from operating a discontinued segment (pretax)	18,650
j.	Gain on insurance recovery of tornado damage		29,520
k.	Net sales		1,002,500
l.	Depreciation expense—Buildings	52,400
m.	Correction of overstatement of prior year’s sales (pretax)	16,400
n.	Gain on sale of discontinued segment’s assets (pretax)		36,000
o.	Loss from settlement of lawsuit	24,150
p.	Income tax expense	?
q.	Cost of goods sold	486,500

Required:

1. Compute the tax effects and after-tax amounts of the three items labeled pretax.

### Financial Reporting Table

This table presents financial data related to a discontinued business segment and includes columns for pre-tax values, tax effects, and after-tax values.

| Description | Pretax | 40% 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

- **Columns:**
- **Pretax:** Represents the financial figures before tax considerations.
- **40% Tax Effect:** Shows the impact of a 40% tax rate on the pre-tax figures.
- **After-Tax:** Presents the final values after accounting for the tax effect.

- **Rows:**
- **Loss from operating a discontinued segment:** Details the losses incurred from continuing operations that have now been discontinued.
- **Correction of overstatement of prior year’s sales:** Adjustments made to rectify any overstatements in sales from the previous year.
- **Gain on sale of discontinued segment’s assets:** Denotes the financial gain achieved from selling the assets of the discontinued segment.

This structured format can assist learners and professionals in analyzing financial adjustments related to discontinued operations.

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Please advise on the answers for After Tax (C) the first two answers are wrong. It is not -26100 and -22960. Please advise.

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