
Requirement 1
To Prepare:
The income tax effects and after tax amounts
Requirement 1

Answer to Problem 6APSA
Solution:
The income tax effects and after tax amounts are given below
Effect of income taxes (debits or losses is shown in negative amount) | |||
Particulars | Pretax | 30% Tax Effect | After-Tax |
l. Loss from operating a discontinued segment | -18,250 | -5,475 | -12,775 |
j Gain on insurance recovery of tornado damages | 29,120 | 8,736 | 20,384 |
m. Correction of overstatement of prior year’s sale | -16,000 | -4,800 | -11,200 |
n. Gain on sale of discontinued segment’s assets | 34,000 | 10,200 | 23,800 |
Explanation of Solution
The following assumptions is taken
- The tax rate is given 30%
- The pre tax labeled items have to be calculated for tax effects
The calculation of tax income tax effects and after tax amounts in excel is given below
Effect of income taxes (debits or losses is shown in negative amount | ||||||
Particulars | Pretax | 30% Tax Effect | After-Tax | |||
Amount($) | Tax rate | Tax amount | Amount($) | |||
A | B | C=A x B | D=A-C | |||
l. Loss from operating a discontinued segment | -18,250 | 30% | -5,475 | -12,775 | ||
j Gain on insurance recovery of tornado damages | 29,120 | 30% | 8,736 | 20,384 | ||
m. Correction of overstatement of prior year’s sale | -16,000 | 30% | -4,800 | -11,200 | ||
n. Gain on sale of discontinued segment’s assets | 34,000 | 30% | 10,200 | 23,800 |
Conclusion:
The total income tax effect is $8,661 and total income post tax amount is $20,209
There is Income from discontinued segment of $11,025 for the year 2015
Requirement 2
To Prepare:
The Net income from continuing operations before and after tax expense
Requirement 2

Answer to Problem 6APSA
Solution:
The Net income from continuing operations before and after tax expense is given below
Olinda corporation | ||||||
Income statement ($) | ||||||
For the year ended December 31,2015 | ||||||
| | | | |||
k. | Net sales | | 998,500 | |||
a | Interest revenue | | 14,000 | |||
g. | Gain from settling lawsuit | | 44,000 | |||
| Total revenues and gains | | 1,056,500 | |||
q | Cost of goods sold | 482,500 | | |||
b | 34,000 | | ||||
i. | Depreciation expense—Buildings | 52,000 | | |||
e | Other operating expenses | 106,400 | | |||
c | Loss on sale of equipment | 25,850 | | |||
o | Loss from settling lawsuit | 23,750 | | |||
| Total expenses and losses | | 724,500 | |||
| Income from continuing operations before taxes | | 332,000 | |||
p | Income taxes expense (30%) | | 99,600 | |||
| Income from continuing operations after taxes | | 232,400 |
Explanation of Solution
Only those items which impact the income statement are taken the revenue and expanses of continuing operations are. The income from continuing operations are calculated as below
- The total revenues and gains are first calculated which includes net sales , interest revenue and gain from settling law suit
- Next the total expenses and losses related to continuing operations is calculated
- The income from continuing operations before income tax is calculated by following equation
- The income tax rate is given 30%. the income tax expenses is calculated below
- The income from continuing operations is calculated below
Conclusion:
The income from continuing operations before income tax is $ 332,000, the income tax expense is $ 99,600 and income from continuing operations is $232,400
There is Income from discontinued segment of $11,025 for the year 2015
Requirement 2
To Prepare:
The Net income from continuing operations before and after tax expense
Requirement 2

Answer to Problem 6APSA
Solution:
The Net income from continuing operations before and after tax expense is given below
Olinda corporation | ||||||
Income statement ($) | ||||||
For the year ended December 31,2015 | ||||||
| | | | |||
k. | Net sales | | 998,500 | |||
a | Interest revenue | | 14,000 | |||
g. | Gain from settling lawsuit | | 44,000 | |||
| Total revenues and gains | | 1,056,500 | |||
q | Cost of goods sold | 482,500 | | |||
b | Depreciation expense—Equipment | 34,000 | | |||
i. | Depreciation expense—Buildings | 52,000 | | |||
e | Other operating expenses | 106,400 | | |||
c | Loss on sale of equipment | 25,850 | | |||
o | Loss from settling lawsuit | 23,750 | | |||
| Total expenses and losses | | 724,500 | |||
| Income from continuing operations before taxes | | 332,000 | |||
p | Income taxes expense (30%) | | 99,600 | |||
| Income from continuing operations after taxes | | 232,400 |
Explanation of Solution
Only those items which impact the income statement are taken the revenue and expanses of continuing operations are. The income from continuing operations are calculated as below
- The total revenues and gains are first calculated which includes net sales , interest revenue and gain from settling law suit
- Next the total expenses and losses related to continuing operations is calculated
- The income from continuing operations before income tax is calculated by following equation
- The income tax rate is given 30%. the income tax expenses is calculated below
- The income from continuing operations is calculated below
Conclusion:
The income from continuing operations before income tax is $ 332,000, the income tax expense is $ 99,600 and income from continuing operations is $232,400
Requirement 3
To Prepare:
The after income tax income (loss) from discontinued segment
Requirement 3

Answer to Problem 6APSA
Solution:
The after income tax income (loss) from discontinued segment is given below
After tax income from discontinued segment (debits or losses is shown in negative amount | |
Particulars | Amount($) |
l. Loss from operating a discontinued segment (after Tax) | -12,775 |
n. Gain on sale of discontinued segment’s assets (after tax) | 23,800 |
Income from discontinued segment | 11,025 |
Explanation of Solution
The items which will be taken for calculating income after income tax income (loss) from discontinued segment are only related to discontinued segment which is given below
- Loss from operating a discontinued segment (After Tax) is $12,775 calculated in requirement 1
- Gain on sale of discontinued segment’s assets (after tax) is $23,800 calculated in requirement 1
The total of both items above will show the Income from discontinued segment
There is Income from discontinued segment of $11,025 for the year 2015
Requirement 4
To Prepare:
Income before extraordinary items
Requirement 4

Answer to Problem 6APSA
Solution:
The income before extraordinary items is calculated below
Income before extraordinary items (losses is shown in negative amount) | |
Particulars | Amount($) |
Income from continuing operations after taxes | 232,400 |
Income from discontinued segment | 11,025 |
Income before extraordinary items | 243,425 |
Explanation of Solution
The items which will be taken for calculating income before extraordinary items which is given below
- Income from continuing operations after taxes is $232,400 calculated in requirement 2
- Income from discontinued segment is $11,025 calculated in requirement 3
The total of both items above will show the income before extraordinary items
There is income before extraordinary items of $243,425 for the year 2015
Requirement 5
To Prepare:
Net income for the year 2015
Requirement 5

Answer to Problem 6APSA
Solution:
The Net income is as under
Net income (losses is shown in negative amount) | |
Particulars | Amount($) |
Income before extraordinary items | 243,425 |
Extra ordinary item | |
j Gain on insurance recovery of tornado damages (after tax) | 20,384 |
Net income | 263,809 |
Explanation of Solution
The items which will be taken for Net income which is given below
- Income before extraordinary items is $243,425 calculated in requirement 4
- Gain on insurance recovery of tornado damages (after tax)is $20,384 calculated in requirement 1
The total of both items above will show the Net income
The Net income is $263,809 for the year 2015
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Chapter 17 Solutions
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