For its fiscal year ending October 31, 2012, Reed Corporation reports the following partial data shown below.

Question:

For its fiscal year ending October 31, 2012, Reed Corporation reports the following partial data shown below.

Income before income taxes                             $540,000
Income tax expense (30% 3 $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
  (a) Prepare a correct income statement, beginning with income before income taxes.
  (b) Explain in memo form why the income statement data are misleading.

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Accounting Principles

ISBN: 978-0470534793

10th Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

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