Makar Corporation reported net income before extraordinary items and taxes of $200,000 for the year 2010. During 2010, the average number of common shares outstanding was 35,000. Basic net earnings per share for 2010 are reported to be only $2.00. Makar's income tax rate is 30%. How much was Makar's extraordinary gain or loss (before tax) from a major earthquake? The earthquake was the only item that was reported net of tax in the income statement for 2010.

Question

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The basic net earnings per share is calculated as net income divided by the number of shares. Given $2.00 per share and 35,000 shares, the net income is $70,000. The net income before extraordinary items and taxes is $200,000. The difference is $130,000, which is the extraordinary loss after tax. To find the pre-tax amount, divide $130,000 by (1 - 0.30) to get $100,000.

Makar Corporation Reported Net Income Before Extraordinary Items and Taxes