How should Hobson International report tax on the extraordinary item?

Question

Quizplus · Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), tax benefits from an extraordinary item should be netted against the item in the income statement. Therefore, Hobson International should report a tax benefit of $12 million to net against the $30 million pretax loss in order to reflect the impact of taxes on the extraordinary item. Option A is incorrect because a tax receivable implies that Hobson International is owed money by the government, which is not the case here. Option C is also incorrect because a deferred tax asset represents taxes that will be paid in the future and does not reflect the impact of tax on the extraordinary item in the current period. Option D is incorrect because Hobson International should report the tax impact of the extraordinary item in accordance with GAAP.

How Should Hobson International Report Tax on the Extraordinary Item