On June 30,2014,Sonata Company's operating facilities in Nebraska were destroyed by a flood.The loss of $700,000 was not covered by insurance.Sonata's tax rate for 2014 is 40 percent.In Sonata's income statement for the year ended September 30,2014,this event should be reported as an extraordinary loss of
A) $0.
B) $280,000.
C) $420,000.
D) $700,000.

Question

Quizplus · Accepted Answer

The loss of $700,000 due to the flood is not covered by insurance, thus it is considered an extraordinary loss. To calculate the after-tax amount of this loss, we need to multiply it by the tax rate of 40%. $700,000 x 0.4 = $280,000. This means that the net amount of the loss after taxes is $420,000 ($700,000 - $280,000). Therefore, the event should be reported as an extraordinary loss of $420,000 on Sonata's income statement.

On June 30,2014,Sonata Company's Operating Facilities in Nebraska Were Destroyed