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Information for Hobson Corp. for the current year ($ in millions):

Income from continuing operations before tax $215
Loss on discontinued operation (pretax) 30

Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense included in operating income 70
Depreciation deducted on tax return in excess of depreciation expense 145

Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense 17
The applicable enacted tax rate for all periods is 25%.

What should Hobson report as income from continuing operations?

Respuesta :

Answer:

Income before tax of $17,000,000

net income                   $12,750,000

Explanation:

Hobson income from continuing operations can be computed by eliminating transactions relating to discontinued operations from the details provided:

Income from continuing operations     $215,000,0000

additional warranty expense                  ($70,000,000)

additional depreciation                           ($145,000,000)

non-deductible portion of advertising        $17,000,000

income before tax                                        $17,000,000

tax  at 25%*$17 million                                    ($4,250,000)

Net income                                                      $12,750,000  

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