Cheaney Corporation owns a number of cruise ships and a chain of hotels. THe hot
ID: 2385309 • Letter: C
Question
Cheaney Corporation owns a number of cruise ships and a chain of hotels. THe hotels, which have not been profitable, were discontinued on September 1, 2008. The 2008 operating results for the company were as follows. Operating revenues $12,850,000, Operating expenses 8,700,000, and operating income of 4,150,000. Analysis discloses, operating results of the hotel chain of gain of 200,000 before taxes. Extraordinary loss of 800,000 before taxes, Other revenues and gains of $100,000. 30% income tax bracket.Explanation / Answer
To get operating revenue subtract the operating revenue from the hotel chain from the operating revenue given (12850000 - 2000000 = operating revenue). To get operating expenses subtract expenses from the hotel from the expenses given (8700000 - 2400000 = operating expenses). Subtract the new total for operating expense from the new total for operating revenue to get the correct income from operations. You are given Other revenues and gains as $100000. Add the other revenues and gains to the income from operations, this will give you income before income taxes. Multiple the income before taxes by 30% to get the income tax expense. Subtract the income tax expense from the income before income taxes to get income from continuing operations. The next thing is to get the loss from operations from the hotel. Take the amount of operating revenue from the hotel and subract the operating expenses from the hotel. Take that total and subtract 30% for taxes, this is your loss or gain from hotel operations. The gain on sale of hotels is the actual gain minus teh 30% for taxes. Once you add and/or subtract these amounts from the income from operations you get income beforeextraordinary items. The extraordinary loss is the actual loss minus the 30% for taxes. Subtract this amount from the income before extraordinary items to get your net income.