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25 May, 07:49

Carol Corp. has a component that is a discontinued operations. The component suffered a loss of $60,000. The component was sold for a gain of $200,000. The tax rate is 40%. What is the total income tax effect of the discontinued operations?

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  1. 25 May, 08:20
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    Income tax expense amounts to $56,000

    Explanation:

    The aggregate income tax effect of the discontinued operations is as:

    Net gain = Gain from the sale - Loss suffered

    where

    gain from sale amounts to $200,000

    Loss suffered amounts to $60,000

    Putting the value above:

    Net gain = $200,000 - $60,000

    = $140,000

    On the amount of net gain, the tax will be charged, which is as:

    Tax amount = Net gain * Tax rate

    = $140,000 * 40%

    = $56,000

    Therefore, the income tax expense would be $56,000
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