Question

For its fiscal year ending October 31, 2010, Molini Corporation reports the following partial data.

Income before income taxes $540,000
Income tax expense (30% $390,000) 117,000

Income before extraordinary items 423,000
Extraordinary loss from flood 150,000

Net income $273,000


For its fiscal year ending October 31, 2010, Molini Corporation reports the following partial data.
Income before income taxes $540,000
Income tax expense (30% $390,000) 117,000

Income before extraordinary items 423,000
Extraordinary loss from flood 150,000

Net income $273,000



The flood loss is considered an extraordinary item. The income tax rate is 30% on all items.

Instructions

Complete the correct income statement, beginning with income before income taxes.

MOLINI CORPORATION
Partial Income Statement
For the Year Ended October 31, 2010

Income before income taxes $
Income tax expenseExtraordinary loss from floodIncome before extraordinary item

Income before extraordinary itemIncome tax expenseExtraordinary loss from flood
Income before extraordinary itemIncome tax expenseExtraordinary loss from flood

Net income $

The flood loss is considered an extraordinary item. The income tax rate is 30% on all items.

Instructions

Explain in memo form why the income statement data are misleading

Answer 1

Tonya or Chris or whoever,

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Answer 2

Solution Close
E15-12 (a)
MOLINI CORPORATION
Partial Income Statement

For the Year Ended October 31, 2008
Income before income taxes $540,000
Income tax expense ($540,000 × 30%)

162,000
Income before extraordinary item 378,000
Extraordinary loss from flood, net of $45,000
tax savings ($150,000 × 30%)

105,000
Net income

$273,000


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Answer 3

Complete the correct income statement, beginning with income before income taxes.

MOLINI CORPORATION
Partial Income Statement

For the Year Ended October 31, 2008
Income before income taxes $ 540000
Income tax expense

162000
Income before extraordinary item 378000
Extraordinary loss from flood

105000
Net income

$ 273000