Shambhala Spice Company has experienced a $60,000 loss due to tornado damage to their 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 will be reported as a $42,000 expense on the income statement. The company will receive a tax deduction of $18,000 (30% of $60,000), which will reduce its tax liability by $5,400 (30% of $18,000).

Shambhala Spice Company Has Experienced a $60,000 Loss Due to Tornado