For its fiscal year ending October 31, 2014, Haas Corporation reports the following partial data shown below.

Income before income taxes .............$540,000

Income tax expense (30% 3 $420,000) ......... 126,000

Income before extraordinary items ........... 414,000

Extraordinary loss from flood ............. 120,000

Net income .....................$294,000

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.