Question 29Q - Intermediate Accounting (Kieso)

Question

During 2017, Liselotte Company reported income of \(1,500,000 before income taxes and realized a gain of \)450,000 on the disposal of assets related to a discontinued operation. The criteria for classification as a discontinued operation is appropriate for this sale. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%. Indicate an appropriate presentation of these items in the income statement.

Step-by-Step Solution

Answer

The net income after extraordinary items would be $1,305,000.

Meaning of Extraordinary Items

Extraordinary items refer to the items in the income statement that are not associated with the ordinary operations of a business. Such items include gains or losses and are reported distinctly in the income statement as they are not expected to occur again in the foreseeable future.

Presentation on the income statement

Income Statement (an extract)
Particulars	Amounts ($)
Income from continuing operations	1,500,000
Less: Income tax @ 34%	(510,000)
Income from continuing operations after tax	990,000
Add: Extraordinary items
Gain on disposal of asset	450,000
Less: Tax @ 30%	(135,000)
Net income after extraordinary items	1,305,000