McMinville Corporation manufactures paper products. In 2007, the company purchas

Question

McMinville Corporation manufactures paper products. In 2007, 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 2011, McMinville abandoned the idea and all of the timber tracts were sold for $31 million. Net income for 2011, 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. Deliberate the situation independently and share the solution with the class. The goal of the class is to incorporate the views of each classmate into a consensus approach to the situation.

Explanation / Answer

Net Income is the Total Income - Taxes paid on income

So Tax on selling timber tracts in 31$ is 30% of (31) which is (0.3*31$)=9.3$

So net profit by selling timer and yarly profit is 31$+17.5$-9.3$ which is 39.2$

Just by seeing the selling of timer tracts alone the company incurred a loss as purchasing was of 11$ and selling at 31$ and paying tax alone gave a loss but on a whole in 2011 the net profit + this sale statement made a profit for company

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