Question

Bridge Company’s results for the year ended December 31, 2016, include the following material items:

Sales revenue $5,000,000
Cost of goods sold 3,000,000
Administrative expenses 1,000,000
Gain on sale of equipment 200,000
Loss on discontinued operations 400,000
Understatement of depreciation expense in 2015 caused by mathematical error 250,000
Bridge Company’s income from continuing operations before income taxes for 2016 is:

a. $700,000
b. $950,000
c. $1,000,000
d. $1,200,000

Answer 1

(C) $1,000,000

Step-by-step explanation:

A company's continuing operations are events that make up or are involves in the regular business activity of a company. As such, for a company whose primary business is the sales of, for example, groceries, the sale of an equipment is not a part of the Company's continuing operations.

For Bridge Company, its income from continuing operations before income tax is computed as follows.

Sales revenue, $5,000,000

Less, Cost of goods sold, $3,000,000

Less Administrative expenses, $1,000,000

Therefore, income from continuing operations = $1,000,000.

Gain on sale of equipment, loss on discontinued operations, and an adjustment for previous depreciation expenses are not continuing operations' items.