Misty Company reported the following before-tax items during the current year:

Sales $600

Operating Expenses 250

Restructuring charges 20

Extraordinary loss 50

Misty's effective tax rate is 40%

What would be Misty's income before extraordinary items?

a. $198

b. $210

c. $330

d. $360

What would be Misty's net income for the current year?

a. $148

b. $168

c. $112

d. None of the amounts given is correct

Option (c) is correct.

Option (b) is correct.

Explanation:

Income before extraordinary items:

= Sales - Total expenses

= $600 - (Operating Expenses + Restructuring charges)

= $600 - (250 + 20)

= $600 - $270

= $330

Income before tax = $330

Income after taxes before extraordinary items:

= Income before tax - taxes

= $330 - (40% * $330)

= $330 - $132

= $198

Net income:

= Income after taxes before extraordinary items - Extraordinary loss (Net of tax)

= $198 - [$50 - (40% * $50) ]

= $198 - $30

= $168