Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2014 included the following: Other information:Logan's income tax rate is 30%. Finished goods inventory:January 1, 2014 $160,000December 31, 2014 140,000On Logan's multiple-step income statement for 2014,Income before extraordinary item is
A) $88,000.
B) $54,000.
C) $37,800.
D) $21,000.

Question

Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2014 included the following:  Other information:Logan's income tax rate is 30%. Finished goods inventory:January 1, 2014 $160,000December 31, 2014 140,000On Logan's multiple-step income statement for 2014,Income before extraordinary item is
A) $88,000. 
B) $54,000. 
C) $37,800. 
D) $21,000.

Quizplus · Accepted Answer

To calculate income before extraordinary item, we need to start with net sales and deduct cost of goods sold and operating expenses.

Net sales: $700,000 
Cost of goods sold: 
Beginning finished goods inventory: $160,000 
Cost of goods manufactured: $500,000 
Ending finished goods inventory: ($140,000) 
Cost of goods sold: $520,000

Gross profit: $180,000

Operating expenses: 
Selling expenses: $40,000 
Administrative expenses: $50,000 
Total operating expenses: $90,000

Operating income: $90,000

Interest expense: $8,000

Income before taxes: $82,000

Income tax expense (30%): $24,600

Income before extraordinary item: $57,400

Therefore, the correct answer is C) $37,800.