McMinville Corporation manufactures paper products. In 2009, the company purchas
ID: 2372524 • Letter: M
Question
McMinville Corporation manufactures paper products. In 2009, the company purchased several large tracts of timber for $22 million with the intention of harvesting the timber rather than buying this critical raw material from outside suppliers. However, in 2013, McMinville abandoned the idea and all of the timber tracts were sold for $31 million. Net income for 2013, before considering this event, is $17.5 million and the company's effective tax rate is 30%.
The focus of this case is the income statement presentation of the gain on the sale of the timber tracts.
Explanation / Answer
It would be shown net of tax (31-22)*.7= $6.3 million as a separate line item on the company's income statement. It would be considered an extraordinary gain from continuing operations and placed right after net income (from continuing operations before extraordinary gain).