Question

Howard Co.'s 2016 income from continuing operations before income taxes was $280,000. Howard Co. reported before-tax income on discontinued operations of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2016, Howard Co. would show which of the following line-item amounts for net income and income tax expense:

a. $213,600 and $117,600 respectively.
b. $356,000 and $318,800 respectively.
c. $117,600 and $213,600 respectively.
d. $232,000 and $269,200 respectively.

Answer 1

$198,000 and $112,000 respectively

Step-by-step explanation:

Income tax expense = Income from continuing operations before income taxes * Tax rate

Income tax expense = $280,000 * 40%

Income tax expense = $112,000

Net income = Income from continuing operations before income taxes - Income tax expense + (Before-tax income on discontinued operations * (1 - 40%)

Net income = ($280,000 - $112,000) + ($50,000 * 0.6)

Net income = $168,000 + $30,000

Net income = $198,000