For its fiscal year ending October 31, 2017, Douglas Limited reports the following partial data shown below.
Income before income taxes ................................. £550,000
Income tax expense (30% × £400,000) ...................... 120,000
Income before discontinued operations ..................... 430,000
Loss on discontinued division ............................... 150,000
Net income .................................................... £280,000
The loss on discontinued division consists of £60,000 loss from operations of the division and £90,000 loss on disposal of the division. 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?