Ester's Bunny Barn has experienced a $60,000 loss due to tornado damage to its inventory. Tornados have never before occurred in this area. Assuming that the company's tax rate is 30%, what amount will be reported for this loss on the income statement?

Question

Quizplus · Accepted Answer

The loss of $60,000 is tax-deductible, so the company can reduce its taxable income by that amount. However, since the tax rate is 30%, the actual tax benefit will be 30% of $60,000, which is $18,000. Therefore, the net impact on the income statement is a decrease in income of $60,000 - $18,000 = $42,000.

Ester's Bunny Barn Has Experienced a $60,000 Loss Due to Tornado