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2.
Pat's Pottery reported the following before-tax income statement items:

Operating income $600,000

Extraordinary loss 100,000

Extraordinary gain 60,000

Pat's has a 25% income tax rate.

Pat's would report the following amount of income tax expense as a separate item in the income statement

Option are:

$175,000
$165,000
$150,000
$140,000

4. Galen Computing reported the following before-tax income statement items for the year ended December 31, 2008:
Operating income before the two items below: $250,000
Change in accounting estimate which increased income $40,000
Extraordinary gain $70,000

All income statement items are subject to a 30% income tax rate. In its 2008 income statement, Galen's separately stated income tax expense and total income tax expense would be:

Option are:

$84,000 and $84,000.
$87,000 and $108,000.
$75,000 and $84,000.
$63,000 and $ 9,000.

6.
On August 1, 2007, Fox Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business by SFAS 144 . The disposal of the division was expected to be concluded by June 30, 2008. On January 31, 2008, Fox's fiscal year-end, the following information relative to the discontinued division was accumulated:

Operating loss February 1, 2007 - Jan. 31, 2008 $115,000
Estimated operating losses, Feb. 1 to Jun. 30, 2008 $80,000
Impairment of division assets at Jan. 31, 2008 $10,000

In its income statement for the year ended January 31, 2008, Fox would report a before-tax loss on discontinued operations of:

$115,000.
$195,000.
$ 65,000.
$125,000.

5. Now, a cumulative effect of a change in accounting principle is reported as:

A restatement of retained earnings
A separate line component of income
A prior period adjustment
Income from modified operations

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Solution Summary

2.
Pat's Pottery reported the following before-tax income statement items:

Operating income $600,000

Extraordinary loss 100,000

Extraordinary gain 60,000

Pat's has a 25% income tax rate.

Pat's would report the following amount of income tax expense as a separate item in the income statement

Option are:

$175,000
$165,000
$150,000
$140,000

4. Galen Computing reported the following before-tax income statement items for the year ended December 31, 2008:
Operating income before the two items below: $250,000
Change in accounting estimate which increased income $40,000
Extraordinary gain $70,000

All income statement items are subject to a 30% income tax rate. In its 2008 income statement, Galen's separately stated income tax expense and total income tax expense would be:

Option are:

$84,000 and $84,000.
$87,000 and $108,000.
$75,000 and $84,000.
$63,000 and $ 9,000.

6.
On August 1, 2007, Fox Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business by SFAS 144 . The disposal of the division was expected to be concluded by June 30, 2008. On January 31, 2008, Fox's fiscal year-end, the following information relative to the discontinued division was accumulated:

Operating loss February 1, 2007 - Jan. 31, 2008 $115,000
Estimated operating losses, Feb. 1 to Jun. 30, 2008 $80,000
Impairment of division assets at Jan. 31, 2008 $10,000

In its income statement for the year ended January 31, 2008, Fox would report a before-tax loss on discontinued operations of:

$115,000.
$195,000.
$ 65,000.
$125,000.

5. Now, a cumulative effect of a change in accounting principle is reported as:

A restatement of retained earnings
A separate line component of income
A prior period adjustment
Income from modified operations

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2. The answer is $150,000. $600,000 x 25% = $150,000

4. The answer is between $75,000 and $84,000. Why?
Income tax expense stated ...

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