Question

ABC Company has a pretax loss on Division X, a held-for-sale component, of $50,000. ABC Company is subject to a 30% income tax rate. What is ABC Company's after-tax loss on Division X?

Answer 1

Answer:

$35,000

Explanation:

Data provided in the question

Pre tax loss on sale of a component = $50,000

Income tax rate = 30%

So, the after tax loss on Division X is

= Pre tax loss on sale of a component - Pre tax loss on sale of a component × income tax rate

= $50,000 - $50,000 × 30%

= $50,000 - $15,000

= $35,000

We deduct the income tax rate from the pre tax loss so that the after tax loss could come