Evers, Inc. disposes of an unprofitable division of its business. The operation of the division suffered a $600,000 loss in the year of disposal. The loss on disposal of the division was $300,000. If the tax rate is 30%, and income before income taxes was $3,750,000,
A) the income tax expense on the income before discontinued operations is $858,000.
B) the income from continuing operations is $2,625,000.
C) net income is $2,850,000.
D) the losses from discontinued operations are reported net of income taxes at $450,000.

Question

Quizplus · Accepted Answer

To calculate income from continuing operations, we need to subtract the loss on disposal of the division ($300,000) and the income tax expense on the loss ($90,000, which is 30% of the loss) from income before income taxes. 
Income from continuing operations = $3,750,000 - $300,000 - $90,000 = $2,625,000. Therefore, choice B is correct. 
Choice A is incorrect because it only calculates the income tax expense on the income before discontinued operations, not on the loss from discontinued operations. 
Choice C is incorrect because it does not take into account the loss from discontinued operations and the related income tax expense. 
Choice D is incorrect because it reports the losses from discontinued operations net of income taxes, but does not provide the total income from continuing operations or the net income.