Information for Hobson Corp. for the current year ($ in millions):

Income from continuing operations before tax $215

Loss on discontinued operation (pretax) 30

Temporary differences (all related to operating income):

Accrued warranty expense in excess of expense included in operating income 70

Depreciation deducted on tax return in excess of depreciation expense 145

Permanent differences (all related to operating income):

Nondeductible portion of entertainment expense 17

The applicable enacted tax rate for all periods is 25%.

What should Hobson report as income from continuing operations?

Question

Corbin Terry

Business

30 June, 06:39

Information for Hobson Corp. for the current year ($ in millions):

Income from continuing operations before tax $215

Loss on discontinued operation (pretax) 30

Temporary differences (all related to operating income):

Accrued warranty expense in excess of expense included in operating income 70

Depreciation deducted on tax return in excess of depreciation expense 145

Permanent differences (all related to operating income):

Nondeductible portion of entertainment expense 17

The applicable enacted tax rate for all periods is 25%.

What should Hobson report as income from continuing operations?

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Answers (1)

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Porter Small · Answer 1

Income before tax of $17,000,000

net income $12,750,000

Explanation:

Hobson income from continuing operations can be computed by eliminating transactions relating to discontinued operations from the details provided:

Income from continuing operations $215,000,0000

additional warranty expense ($70,000,000)

additional depreciation ($145,000,000)

non-deductible portion of advertising $17,000,000

income before tax $17,000,000

tax at 25%*$17 million ($4,250,000)

Net income $12,750,000