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Southeast Airlines had pretax earnings of $85 million, including a gain on disposal of a...

Question:

Southeast Airlines had pretax earnings of $85 million, including a gain on disposal of a discontinued operation of $15 million. The company's tax rate is 40%. What is the amount of income tax expense that Southeast should report in its income statement?

Discontinued Operations:

Discontinued operations are those business segments that are sold or are expected to be sold in the future, these sections should be identified, when it is estimated that the business segment to be sold could result in a loss on sale in these operations and should be recognized in the statement of income on the date that managers adopt the position to proceed with such sale, in case of gain, this is not recognized until it is converted into cash or its equivalent

Answer and Explanation:

Southeast Airlines must show the amount of $21 million in tax expenses on the income statement

Pretax earnings 85 million
Less:Gain on discontinued operation 15 million
Taxable Income 70 million
Tax Rate 30%
Income Tax Expense 21 million


Learn more about this topic:

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Operations of an Income Statement

from Accounting 101: Financial Accounting

Chapter 8 / Lesson 5
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