Information concerning Krall Corporation’s operations during 2014 follows. a. Ad
ID: 2462902 • Letter: I
Question
Information concerning Krall Corporation’s operations during 2014 follows.
a. Administrative expenses, $90,000
b. Cost of goods sold, $420,000
c. Extraordinary loss from an earthquake (net of taxes, $36,000), $60,000
d. Sales (net), $900,000
e. Selling expenses, $80,000
f. Income taxes expense applicable to continuing operations, $105,000
1. Prepare the corporation’s income statement for the year ended December 31, 2014 (ignore earnings per share data).
2. Which item in Krall’s income statement affects the company’s quality of earnings? Why does it have an effect on quality of earnings?
Explanation / Answer
Income Statement for the year ended Dec 31 2014
The Company's Quality of Earnings is effected by the Extraordinary loss from Earthquake because such natural disasters have an adverse impact on the overall production and sales cycle of the company thereby effecting even the quaity of earnings.
Sales $900000 Less Cost of Goods Sold (420000) Gross Profit 480000 less Selling Expense (80000) less Administrative Expense (90000) Operating Income before taxes $310000 less Income tax from Operations 105000 Income before tax and Extraordinary Items $205000 less Extraordinary loss from Earth quake (net of taxes) (60000) Profit for the Year $145000