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7 February, 15:26

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

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Answers (1)
  1. 7 February, 15:46
    0
    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
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