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22 April, 14:36

Information for Hobson Corp. for the current year ($ in millions):

Income from continuing operations before tax $215

Loss on discontinued operation (pretax) 30

Temporary differences (all related to operating income):

Accrued warranty expense in excess of expense included in operating income 70

Depreciation deducted on tax return in excess of depreciation expense 145

Permanent differences (all related to operating income):

Nondeductible portion of entertainment expense 17

The applicable enacted tax rate for all periods is 25%.

What should Hobson report as income from continuing operations?

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  1. 22 April, 15:22
    0
    Income before tax of $17,000,000

    net income $12,750,000

    Explanation:

    Hobson income from continuing operations can be computed by eliminating transactions relating to discontinued operations from the details provided:

    Income from continuing operations $215,000,0000

    additional warranty expense ($70,000,000)

    additional depreciation ($145,000,000)

    non-deductible portion of advertising $17,000,000

    income before tax $17,000,000

    tax at 25%*$17 million ($4,250,000)

    Net income $12,750,000
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