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12 April, 21:09

At Sandhill Co., events and transactions during 2020 included the following. The tax rate for all items is 20%. (1) Depreciation for 2018 was found to be understated by $118400. (2) A strike by the employees of a supplier resulted in a loss of $101700. (3) The inventory at December 31, 2018 was overstated by $151900. (4) A disposal of a component of the business resulted in a $2010000 loss. The effect of these events and transactions on 2020 net income net of tax would be

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  1. 12 April, 22:30
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    (1) decrease for 94,720

    (2) decrease for 81,360

    (3) decrease for 121,520

    (4) decrease for 402,000

    Total decrease 699,600

    Explanation:

    We must calcualte the after-tax amount.

    (1) As this is an expense ist provides a tax shield, lowering the expense after-tax:

    118,400 x (1 - 0.2) = 94,720

    (2) also a loss whch has a tax shield:

    101,700 x (1 - 0.2) = 81,360

    (3) an overstated inventory for 151,900 generate a loss for holding assets.

    After tax: 151,900 x (1 - 0.2) = 121,520

    (4) loss at dispossal: 2,010,000

    2,010,000 x (1 - 0.2)) = 402,000
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