Question

Southeast Airlines had pretax earnings of $30 million, including a gain on disposal of a discontinued operation of $5 million. The company’s tax rate is 40%. What is the amount of income tax expense that Southeast should report in its income statement?

Answer 1

Answer:

Income tax expense of $14 million should report in the income statement

Explanation:

Southeast Airline should report the income on the basis of their earning in the year.

Earning Before Tax = $30 Million

Tax on Earning Before Tax = $30 Million x 40% = $12 million

Gain on disposal = $5 million

Tax on Gain on disposal = $5 million x 40% = 2 million

Total Income tax = $12 million + $2 million = $14 million

Another way

Total Income tax = ( $30 million + $5 million ) x 40% = $14 million