Special Income Events Booth Companys income statement for the current period included (1) a gain of $800,000
Question:
Special Income Events Booth Company’s income statement for the current period included (1) a gain of
$800,000 (net of tax) on the sale of one of its three major operating divisions, (2) an extraordinary loss of $320,000 (net of tax) on the retirement of bonds payable prior to maturity, and (3) an addition to income of $415,000 as a cumulative adjustment (net of tax) resulting from a change to straightline depreciation from double-declining-balance depreciation on certain equipment.
a. Why are events such as these separately disclosed in the income statement?
b. What effect did the three events have on Booth’s reported income for the current period?
What effect will each of the events have on reported net income in the following period? What factors might cause an investor to view the gain of $800,000 on the sale of the operating division unfavorably?
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