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# Accounting Questions

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

#### Solution Preview

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 ...

#### 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

\$2.19