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24 January, 16:51

Southeast Airlines had pretax earnings of $30 million, including a gain on disposal of a discontinued operation of $5 million. The company's tax rate is 40%. What is the amount of income tax expense that Southeast should report in its income statement?

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  1. 24 January, 18:00
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    Income tax expense of $14 million should report in the income statement

    Explanation:

    Southeast Airline should report the income on the basis of their earning in the year.

    Earning Before Tax = $30 Million

    Tax on Earning Before Tax = $30 Million x 40% = $12 million

    Gain on disposal = $5 million

    Tax on Gain on disposal = $5 million x 40% = 2 million

    Total Income tax = $12 million + $2 million = $14 million

    Another way

    Total Income tax = ($30 million + $5 million) x 40% = $14 million
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