During the year 2011, Torino Corporation suffered a $1,200,000 loss when its factory was severely damaged in an earthquake. Assuming the corporate income tax rate is 30%, what amount will Torino report as an extraordinary loss on its income statement for 2010? Assume earthquakes are not common in this area.

Question

Quizplus · Accepted Answer

The loss of $1,200,000 due to earthquake damage is an unusual and infrequent event that does not arise in the ordinary course of Torino's business. Therefore, it qualifies as an extraordinary item. To calculate the amount of the extraordinary loss, we need to multiply the loss amount by (1 - tax rate), which is (1 - 0.30) = 0.70. Therefore, the extraordinary loss amount is $1,200,000 x 0.70 = $840,000.

During the Year 2011, Torino Corporation Suffered a $1,200,000 Loss