How to Calculate Income Before Extraordinary Items - Bizfluent

Extraordinary items on a company's income statement represent costs that do not occur regularly. It is an item that is subtracted from a ... TAXESHowtoCalculateIncomeBeforeExtraordinaryItemsBy:JamesGreenUpdatedSeptember26,2017By:JamesGreenUpdatedSeptember26,2017ShareItShareTweetPostEmailPrintRelatedHowtoDeterminetheTaxRateFromanIncomeStatementLearnMore→Extraordinaryitemsonacompany'sincomestatementrepresentcoststhatdonotoccurregularly.Itisanitemthatissubtractedfromacompany'sincome,suchasthecostsassociatedwithrepairingafarmbuildingafteranearthquake.Extraordinaryitemsaresubtractedaftertaxforbothcontinuinganddiscontinuedoperations,butbeforeanydepreciationistakenintoaccount.Obtainthecompany'sincomestatement.Allcompaniesmustprepareanincomestatementforthepurposeofpayingtaxes.Ontheincomestatement,youwillneedthecompany'sincomebeforetaxesandanyincomegainedfromdiscontinuedoperationsthatthecompanynolongercarriesout.Calculatetheincometaxexpenseforthecompanyusingthecompany'scurrentfederalandstatetaxbracket.So,ifincomebeforetaxesis$120,000andthetaxrateis27percent,theincometaxexpenseis(0.27)($120,000)=$32,400.Subtractthetaxexpensefromincomebeforetaxestocalculatetheincomefromcontinuingoperations.Usingthesameexample,subtracting$32,400from$120,000givesafigureof$87,600.Calculatethegainondiscontinuedoperationsaftertax.Ifthecompanymade$10,000forthefirstsixmonthsoftheyearinanactivitynolongercarriedoutbythecompany,andthiswastaxedatarateof14percent,thegainondiscontinuedoperationsaftertaxwouldbe$10,000-(0.14)($10,000)=$8,600.Addtheincomefromcontinuingoperationstothegainondiscontinuedoperationsaftertax.Usingthesameexample,adding$87,600to$8,600givesafigureof$96,200.Thisfigurerepresentsthecompany'sincomebeforeextraordinaryitemsareadded.ReferencesCliffsNotes:IncomeStatementMoney-Zine:UnderstandingNetIncome