For its fiscal year ending October 31, 2014, Douglas Corporation reports the fol- Prepare a correct income lowing partial data shown below. statement.

Income before income taxes $550,000 (LO 6)

Income tax expense (30% X $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) Ol > Explain in memo form why the income statement data are misleading.