Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
Question
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Chapter 12, Problem 12.2P
To determine

Pre-tax loss:

Pre-tax loss is basically defined as the loss which is incurred before paying the income taxes.

Income tax expense is basically defined as an expense that the business has to pay during a particular accounting period.

To calculate:

The pre-tax loss and related tax expense for the first three-quarters of 2017for continuing and discontinued operations.

Expert Solution & Answer
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Answer to Problem 12.2P

Tax Benefit for Quarter 2 is $23040 and for Quarter 3 is $27200 .

Explanation of Solution

Tax expense (benefit) for the first three quarters is as follows:

    Interim period (Owner)Tape of incomePre-tax income (loss)Effective tax rateTaxexpense (benefit) Previously reported an SICurrent period (in SI
    Current period lin SIYear-to-date (in 5)Year.,-Date (n 5)
    FirstContinuing operation(45000)(45000)Refer note A (6400)-(6400)
    First - restatedContinuing operation(30000)(30000)Refer note B(6400)-(6400)
    First - restatedDiscontinued operation(15000)(15000)Refer note B---
    SecondContinuing operation(58000)2800026.44%7403(6400)13803
    SecondDiscontinued operation(57000) Refer note C (72000)Refer working note A (23040)-(23040)
    ThirdContinuing operation400006800024.73%1618674039413
    ThirdDiscontinued operation(13000) Refer note C (85000)Refer working note B(27200)(23040)(4160)

Note A:

Tax benefit can be estimated by summing the tax expense in the past 2 years -

  =[($12000×30%)+($10000×28%)]

Note B:

Tax benefit can be discovered by carrying the loss of $15,000 and tax credit in the past 2 years -

  =[($12000×30%)+($10000×28%)+$1960]

Note C:

Pre-tax income (losses) of discontinued operations

  =[Pre-tax operating losses+Gain form disposal of assetRevised imprint losses]=($30000)+$25000+($42000$34000)+($16000)=$13000

Note D:

Pre-tax income (losses) of discontinued operations

  =[Pre-tax operating losses+Pre-tax impairment losses]=$15000+$42000=$57000

Working Note A.

    ParticularsOrdinary incomeAll sources
    Annual income (loss)9000018000
    Annual net tax expense (benefit),=[($18000×32%)$5000]23800760

Calculation of tax benefit associated with the discontinued operation - Quarter 2

  Tax Benefit=[Annual net tax benefit ( ordinary income)–Annual net tax benefit ( all sources)]=$23,800$760=$23,040

  =[Pre-tax operating losses+Gain form disposal of assetRevised imprint losses]=($30000)+$25000+($42000$34000)+($16000)=$13000

Working Note B.

    ParticularsOrdinary incomeAll sources
    Annual income (loss)110,00025000
    Annual net tax expense (benefit)  =[($25000×32%)$8000]27,200_

Calculation of tax benefit associated with the discontinued operation - Quarter 3:

  Tax Benefit =[Annual net tax benefit ( ordinary income)Annual net tax benefit ( All sources)]=$27,200$0=$27,200

   Fixeed Asset Turnover=Total RevenueTotal Fixed Assets×100=$23,890,000$18,230,00×100=1.31%

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