E15-12 For its fiscal year ending October 31, 2008, Molini Corporation reports the following

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E15-12 For its fiscal year ending October 31, 2008, Molini Corporation reports the following
partial data.

Income before income taxes $540,000
Income tax expense (30% $390,000) 117,000
Income before extraordinary items 423,000
Extraordinary loss from flood 150,000
Net income $273,000

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