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Saf
Feb 6, 2007, 10:02 PM
Vision Corporation's financial statements for the current year include the following:

Income from continuing operations $744,000
Prior period adjustment (increase in prior year net income, net of taxes 228,000
Cash dividends paid to preferred stockholders 242,400
Gain from discontinued operations (net of taxes) 492,000
Extraordinary loss (net of tax benefit) 114,000


On the basis of this information, net income for the current year is:

moussahawas
Feb 6, 2007, 11:36 PM
Let me check the answer of this question, and I will reply you soon.

KongTheKonqueror
Feb 7, 2007, 07:50 PM
Income from continuing operations $744,000
This is the obvious starting point.

Prior period adjustment (increase in prior year net income, net of taxes 228,000
This only affects the previous years net income and is net reflected in calculating the current years net income.

Cash dividends paid to preferred stockholders 242,400
Dividends do not affect net income.

Gain from discontinued operations (net of taxes) 492,000
Add all gains

Extraordinary loss (net of tax benefit) 114,000
Subtract all losses

744,000+492,000+114,000=1,380,000.

The gains and losses are still used in calculating net income, they are just reported below income from continuing operations. This allows users of the income statements to realize the difference between usual business actives (operating income) and unusual activities that affect net income such as gains, losses, extraordinary events, etc...

CaptainForest
Feb 8, 2007, 10:09 PM
Kong was on the right track, but Kong just made a simple mistake.

Kong told you that:

Extraordinary loss (net of tax benefit) 114,000
Subtract all losses

That is correct.

However, Kong's calculation of Net Income should therefore read:
744,000 + 492,000 - 114,000 = 1,122,000.