For its fiscal year ending October 31, 2014, Douglas Corporation reports the following partial data shown below.
Income before income taxes .........$550,000
Income tax expense (30% × $410,000) ......123,000
Income before extraordinary items ......427,000
Extraordinary loss from flood .......140,000
Net income ..............$287,000
The flood loss is considered an extraordinary item. The income tax rate is 30% on all items.
Instructions
(a) Prepare a correct income statement, beginning with income before income taxes.
(b) Explain in memo form why the income statement data are misleading.