Financial Statement Analysis

For its fiscal year ending October 31, 2020, Haas Corporation reports the following partial data shown below.

The loss on discontinued operations comprised a $50,000 loss from operations and a $70,000 loss from disposal. The income tax rate is 20% on all items.

Instructions

1. Prepare a correct statement of comprehensive income beginning with income before income taxes.
2. Explain in memo form why the income statement data are misleading.

Solution

Trayer Corporation has income from continuing operations of $290,000 for the year ended December 31, 2020. It also has the following items (before considering income taxes).

1. An unrealized loss of $80,000 on available-for-sale securities.
2. A gain of $30,000 on the discontinuance of a division (Comprising a $10,000 loss from operations and a $40,000 gain on disposal).
3. A correction of an error in last year's financial statements that resulted in a $20,000 understatement of 2019 net income

Assume all items are subject to income taxes at a 20% tax rate.

Instructions

Prepare a statement of comprehensive income, beginning with income from continuing operations.

Solution