Question

Trayer Corporation has income from continuing operations of $254,000 for the year ended December 31, 2020. It also has the following items (before considering income taxes).

An unrealized loss of $77,000 on available-for-sale securities.
A gain of $27,000 on the discontinuance of a division (comprised of a $15,000 loss from operations and a $42,000 gain on disposal).
Assume all items are subject to income taxes at a 20% tax rate. Prepare a statement of comprehensive income, beginning with income from continuing operations.

a) $254,000
b) $196,600
c) $289,400
d) $277,200

Answer 1

To prepare the statement of comprehensive income, start with the income from continuing operations and adjust for other items. Then calculate the comprehensive income by adding the adjusted amounts.

Step-by-step explanation:

To prepare the statement of comprehensive income, we start with the income from continuing operations of $254,000. Then, we adjust for the unrealized loss on available-for-sale securities of $77,000. Since this loss is subject to income tax at a 20% rate, the tax effect is $77,000 * 20% = $15,400. Therefore, the adjusted income from continuing operations is $254,000 - $15,400 = $238,600.

Next, we incorporate the gain on the discontinuance of the division. The gain of $27,000 is subject to the same 20% tax rate, resulting in a tax effect of $27,000 * 20% = $5,400. Therefore, the adjusted gain on disposal is $27,000 - $5,400 = $21,600.

Finally, we calculate the comprehensive income by adding the adjusted income from continuing operations and the adjusted gain on disposal: $238,600 + $21,600 = $260,200. Therefore, the correct answer is (a) $254,000.