Question

Information for Hobson Corp. for the current year ($ in millions): Income from continuing operations before tax Loss on discontinued operation (pretax) $230 60 Temporary differences (all related to operating income): Accrued warranty expense in excess of expense included in operating income Depreciation deducted on tax return in excess of depreciation expense 20 25 Permanent differences (all related to operating income) : Nondeductible portion of entertainment expense 10 The applicable enacted tax rate for all periods is 40 %. How much tax expense on income from continuing operations would be reported in Hobson's income statement? Multiple Choice $72 million.

The applicable enacted tax rate for all periods is 40 % How much tax expense on income from continuing operations would be reported in Hobson's income statement? Multiple Choice $72 million. $96 million. $92 million. $94 million.

Answer 1

The tax expense on income from continuing operations would be $92 million.

Step-by-step explanation:

The tax expense on income from continuing operations can be calculated by multiplying the income from continuing operations before tax by the applicable enacted tax rate. In this case, the income from continuing operations before tax is $230 million. The applicable enacted tax rate is 40%. Therefore, the tax expense on income from continuing operations would be $92 million ($230 million * 40%).

Answer 2

The tax expense on income from continuing operations reported in Hobson's income statement would be $82 million.

Step-by-step explanation:

To calculate the tax expense on income from continuing operations, we need to consider the applicable tax rate and the temporary and permanent differences. In this case, the applicable tax rate is 40% for all periods.

First, we calculate the taxable income, which is the income from continuing operations before tax minus the loss on discontinued operation: $230 - $60 = $170 million.

Next, we consider the temporary and permanent differences. The temporary differences can be added back to the taxable income, which are $20 million (accrued warranty expense) and $25 million (excess tax depreciation). The permanent difference, which is the nondeductible portion of entertainment expense, is subtracted from the taxable income: $170 + $20 + $25 - $10 = $205 million.

Finally, we calculate the tax expense by multiplying the taxable income by the applicable tax rate: $205 million x 40% = $82 million.

Therefore, the tax expense on income from continuing operations that would be reported in Hobson's income statement is $82 million.