Roger’s Plumbing, Inc. operates two segments: (1) a division that installs residential and commercial plumbing in buildings being constructed and (2) a service division that has both residential and commercial components. A recent construction boom has kept Roger’s so busy operations that it has been unable to handle all of the service work on a timely basis. Growing tired of phone messages from irritated customers who wanted their leak fixed yesterday (and unable to hire additional qualified employees), management decides in October to sell the service business, begins to advertise its availability, and has the division’s assets appraised. Ted Roger, CEO, believes the service business will be easier to sell if it is split into residential and commercial components. The appraisal results in the following information. Goodwill is the appraiser's estimate of the value of the company’s customer base as Roger's Plumbing plans to forward all service calls for a period of three years to whoever buys each component of the service business. Roger’s Plumbing has income before taxes of \($2,756,000\) for 2008 (the year management decides to sell the service division). This amount includes \($185,400\) residential service income and \($215,000\) commercial service income. Roger’s Plumbing is subject to an income tax rate of 35%.

Required:

Assume that Roger’s Plumbing sells the residential service component on December 5, 2008 for \($99,500\) (less disposal costs of \($2,000).\) By year-end, the company has received three firm offers for the commercial service component that ranged from \($82,500\) to \($87,000.\) Management is still actively seeking a better offer, but if none is obtained plans to sell the component to the highest bidder before the end of January 2009. The company’s auditors tell management that the consistency of the bids to date indicates an error in the appraisal and that an impairment loss should be recognized to comply with SFAS No. 144. Assume estimated costs of \($2,500\) to sell the commercial service component. Prepare an income statement for Roger’s Plumbing, Inc. (for 2008) beginning with income from continuing operations. For purposes of working this problem, report the various components of the gains/losses for discontinued operations separately for actual sales versus assets held for sale. Ignore per share disclosures.

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Assets Residential service component: Service vehicles Repair parts inventory Tool and equipment Goodwill Total-Residential service Commercial service component: Service vehicles Repair parts inventory $ 40,000 25,000 9,500 - Book Value Fair Market Value $ 45,000 22,000 8,000 $ 74,500 20,000 $ 95,000 55,000 53,500 21,000 21,000 Tool and equipment 14,500 12,000 Goodwill 25,000 Total-Commercial service $ 90,500 $111,500 Total for service division $165,000 $206,500