[jeveritt89]

I recently had this question when doing MCQs:
Vane Co.’s trial balance of income statement accounts for the current year ended December 31 included the following:

Debit Credit
Sales $575,000
Cost of sales $240,000
Administrative expenses 70,000
Loss on sale of equipment 10,000
Sales commissions 50,000
Interest revenue 25,000
Freight out 15,000
Loss on early retirement of LT debt 20,000
Uncollectible accounts expense 15,000
Totals $420,000 $600,000
======== ========

Vane’s income tax rate is 30%. In Vane’s year-end multiple-step income statement, what amount should Vane report as income after income taxes from continuing operations?

A.
$126,000

B.
$129,500

Incorrect C.
$140,000

D.
$147,000
Vane should report $126,000, calculated as follows:

Net income before taxes ($600,000 – $420,000) $180,000
Income taxes ($180,000 x 0.30) 54,000
Net income from continuing operations $126,000

Wouldn’t the “Loss on early retirement of LT debt” be unusual and not included in income from continuing operations? Looking the question up online I found this thread, https://www.another71.com/cpa-exam-forum/topic/far-study-group-july-august-2014/page/84/ , which lists the answer as 140,000. Am I missing something here?

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Do or do not, there is no try.

[Ian]

That's weird, maybe there was a rule change from the original post in 2014? Or maybe it depends on Vane Co's business. If their main business is issuing debt, I don't see how that loss could be unusual or extraordinary to them.

But it's not like they even give you that info.

AUD - 76
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Just trying not to fail.

[Globetrotter]

Ian,
You are correct.
I believe that there was a rule change at the end of 2015. FASB simplified F/S by removing Extraordinary part. Now it’s Continued and Discontinued. So, the answer in 2014 and 2018 would be different. 😃

AUD - 94
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BEC - 87 (03/2019)

AUD - 94 (11/2018)

REG - 87 (06/2019)

FAR - 87 (08/2018)

[Author]

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