Asked by ethan battista on Jul 21, 2024
Verified
The Nikel Company sold its cattle ranching component on June 30, 2010, for a gain of $1, 000, 000.From January through June, the component had sustained operating income of $300, 000.The income tax rate is 30%.How should Nikel report the income and the sale on its income statement?
A) as $300, 000 operating income and a $1, 000, 000 gain on sale of component
B) as a $1, 300, 000 gain in operating income
C) as a net of tax gain of $910, 000 after income from continuing operations
D) as $210, 000 operating income and a $700, 000 gain on sale of the component shown before extraordinary items
Operating Income
Profit realized from a business's core operations, excluding deductions of interest and taxes.
Income Tax Rate
The percentage of income that is paid to the government as tax.
Gain on Sale
The profit realized from the sale of an asset when it is sold for more than its carrying amount on the company's books.
- Ascertain and rank unusual and exceptional aspects in financial statements by the standards set by Generally Accepted Accounting Principles.
Verified Answer
JA
Joshua AngelesJul 25, 2024
Final Answer :
C
Explanation :
The correct reporting involves showing the net of tax gain, which includes both the operating income and the gain from the sale of the component, after accounting for taxes. The total pre-tax income is $1,300,000 ($1,000,000 gain + $300,000 operating income). The tax on this amount at 30% is $390,000, leaving a net gain of $910,000. This is reported after income from continuing operations, as it relates to a discontinued operation.
Learning Objectives
- Ascertain and rank unusual and exceptional aspects in financial statements by the standards set by Generally Accepted Accounting Principles.