Summary Business Accounting

Question:

Memorax Company earned before-tax income of $790,000 for its 2013 fiscal year. During the year the

company experienced a $520,000 loss from earthquake damage that it considered to be an extraordinary

item. This loss is not included in the $790,000 before-tax income figure. The company’s income tax rate

is 40%. Prepare the lower portion of the 2013 income statement beginning with $790,000.



Answer:




MEMORAX COMPANY

Partial Income Statement

For the Year Ended December 31, 2013



Income before income taxes and extraordinary item................................... $ 790,000

Income tax expense* ................................................................................... 316,000

Income before extraordinary item ............................................................... 474,000

Extraordinary item:

Loss from earthquake, net of $208,000 tax benefit................................... (312,000)

Net income .................................................................................................. $ 162,000




*$790,000 x 40%