Question

Misty Company reported the following before-tax items during the current year:

Sales $600
Operating Expenses 250
Restructuring charges 20
Extraordinary loss 50

Misty's effective tax rate is 40%

What would be Misty's income before extraordinary items?
a. $198
b. $210
c. $330
d. $360

What would be Misty's net income for the current year?

a. $148
b. $168
c. $112
d. None of the amounts given is correct

Answer 1

Answer:

Option (c) is correct.

Option (b) is correct.

Explanation:

Income before extraordinary items:

= Sales - Total expenses

= $600 - (Operating Expenses + Restructuring charges)

= $600 - (250 + 20)

= $600 - $270

= $330

Income before tax = $330

Income after taxes before extraordinary items:

= Income before tax - taxes

= $330 - (40% × $330)

= $330 - $132

= $198

Net income:

= Income after taxes before extraordinary items - Extraordinary loss (Net of tax)

= $198 - [$50 - (40% × $50)]

= $198 - $30

= $168