The Income Statement of Cotton Inc is in a file below 1 In y

The Income Statement of Cotton Inc is in a file below:

1. In your words, explain each key income line in The Income Statement.

2. Assuming no deferred taxes, and no tax effects in Other Comprehensive Income, what is the amount of Cotton\'s total tax expense for 20XX?

3. What is Cotton\'s effective (average) tax rate for 20XX?

4.. If you were forecasting Cotton\'s future income, what tax rate would you use and why?

5. If you were forecasting Cotton\'s future income, which income line would you use as a base and why?

I need to compare my answers to see if my thought-process is right before I submit this

The Income Statement Cotton Spring Products, Inc. Income Statement For Year Ended Jan. 31, 20XX $100,000 50,000 S 50,000 19,200 S 30,800 10,780 S 20,020 Sales Cost of goods sold Gross profit Selling and administrative expenses Income from continuing operations before tax Tax on income from continuing operations Income from continuing operations Discontinued operations: Income from operation, net of tax of $3,500 Gain on disposal, net of tax of $5,250 $6,500 9.750 $16,250 Net Income from Discontinued Operations Extraordinary item 7800) S 28,470 Loss from earthquake, net of tax of $4,200 Net income Chapter: 09

Solution

1.

1. Sales value is the revenue generated from operations, specifically for which the business was constituted.

2. Cost of goods sold is the sum-total of direct costs such as cost of raw materials or inputs ,cost of labor & indirect costs such as expenses indirectly incurred to produce the goods sold ,such as machine depreciation, factory rent & production supervisor\'s salary.

3. Gross profit is sales revenue less these direct costs of the goods sold.

4. Selling & administrative expenses are expenses incurred exclusively after production bring the produce to the market & allied administrative costs like office & sales manager\'s salaries, selling commissions, advertising office rent and the like.

5. Gross profit less selling & administrative costs gives the income from continuing/regular (core-business) operations for ,but before tax

9.Tax expense is the tax rate%*income from continuing operations

10..This is the after tax income from regular operations

11.. Then AFTER-TAX results of those of the lines of operations that were discontinued during the financial year including loss or gain on disposal of the concerned assets are expressed as the next line item

12..Expenses & losses due to some irregular ,unusual and infrequent happenings like earthquake.tornadoes or fire ---the after tax effect of which are charged as the last line item against profits obtained as above.

13.This net income is from continuing operations netted after income/expenses from discontinued operations & extraordinary items-- both of which are expressed as after-tax .