Final answer:
The effect on net income would be an increase of $20,400 (option 1), which is calculated by deducting the tax amount of $9,600 (32% of the $30,000 gain) from the discontinued operation gain of $30,000.
Step-by-step explanation:
If a company has a discontinued operation gain of $30,000 and a 32% tax rate, the effect on net income would be an increase because the gain is income for the company. However, this increase is subject to taxes. To determine the effect on net income, one can calculate the tax on the gain and then subtract it from the gain to find the net increase. The formula for this calculation is Net Increase = Discontinued Operation Gain - (Discontinued Operation Gain × Tax Rate).
Using the provided 32% tax rate, the calculation is as follows:
Tax on the Gain = $30,000 × 32% = $9,600
Therefore, the net increase in income after taxes would be:
Net Increase = $30,000 - $9,600 = $20,400
So the correct effect on net income is an increase of $20,400.