Notes to the financial statements reveal the following information: 1. Gain on sale of a portion of the branded product line. In Year 10, Henry completed the sale of a portion of one of its branded...

Notes to the financial statements reveal the following information: 1. Gain on sale of a portion of
the branded product line. In Year 10, Henry completed the sale of a portion of one of its
branded product lines for $735 million. The transaction resulted in a pretax gain of $464.5
million. The sale did not qualify as a discontinued operation. Henry did not disclose the tax
effect of the gain reported in Table above.
REQUIRED
a. Discuss whether you would adjust for each of the following items when using earnings to
forecast the future profitability of Henry :
1. Gain on sale of a portion of the branded product line.
2. Extraordinary loss .
b. Indicate the adjustment you would make to Henry’s net income for each item in Requirement
(a)

Extracted text: Henry Company Income Statement (amounts in millions) (Problem 6.18) Year 12 Year 11 Year 10 Sales $ 9,431 $ 8,821 $ 8,939 Gain on sale of branded product line Cost of goods sold Selling and administrative expenses 465 - (6,094) (5,884) (1,955) (5,789) (1,746) (1,882) Interest income 27 23 25 Interest expense Other income (expense) (270) (25) (294) (333) (45) Income before Income Taxes and Cumulative $ 1,279 (445) $ 834 $ 1,463 Effect of Accounting Changes Income tax expense $ 673 (178) $ 495 (573) $ 890 Income before Extraordinary Item Extraordinary loss (net of taxes) (17) Net Income $ 834 $ 478 $ 890