Background: You have recently been hired as the new staff accountant at Midwest Mechanical Corporation. Midwest Mechanical Corporation is a $35 million (annual sales) company. The company machines parts for small outboard (boat) motors. The accounting department consists of the controller, staff accountant (you), and a parts manager (responsible for inventory accounting).

Outboard motors consist of three main sections. These include:

1. Top (outboard powerhead)
2. Mid-section
3. Outboard lower unit

Midwest Mechanical Corporation has organized their business into three main divisions aligning with the three main sections of the outboard motor.

$Millions 2020 2019 2018

Division Sales| %GM $Sales | %GM $Sales | %GM

Power Division $11.20 | 24.10% $13.50| 26.10% $14.10| 29.10%

Midsection Division $12.90| 29.20% $12.10| 28.80% $12.20| 27.50%

Lower Unit Division $10.10 | 44.50% $ 8.40| 42.80% $6.60 | 43.60%

Other $0.80 | Not Available $0.70| Not available $0.60 | Not available

Total $35.00 $ 34.70 $33.50

Current Events - In February 2021, Midwest Mechanical Corporation announced to their customers that they will no longer service/machine the powerhead portion of outboard motors as of June 30, 2021. In the announcement, Midwest Mechanical was careful to remind customers the work they will continue (detailing to the customers the specific types of machining jobs completed for the midsection and lower unit).

On June 30, 2021, Midwest Mechanical Corporation sold specific equipment only used to machine powerhead parts. Specifically, they sold equipment that had a cost of $2.5 million and accumulated depreciation of $2.2 million. The equipment was sold for $2 million dollars.

For the first six months of 2021, Midwest Mechanical Corporation's Powerhead Division had sales of $4.8 million and COGS of $3.7 million.

The Fiscal Year Ending December 31, 2021 income statement is presented below.

Midwest Mechanical Corporation

Income statement

	For the year Ended December 31		2021
Sale revenue
Sales discount
Sales Returns and allowance
Net sales		$34,365,000
Cost of Goods sold		$ 20,950,000
Gross profit		13,415,000
GP%		39%
Selling and Administrative
Selling expense	$4,950,000
Administrative Expenses	$2,925,000	$7,875,000
ncome from operations		$5,540,000
Other Revenues & Gains
Interest income	85,000
Gain on sale of equipment	$1,700,000
Other expenses % loss
Loss due to storm damage	$75,000
Interest expense	150,000	$(225,000)
Income before income tax		$7,100,000
income tax expense		$2,485,000	0.35
net income		$4,615,000
EPS		$4.62

Note: The supporting trial balance

Midwest Mechanical Corporation
Adjusted Trial Balance
December 31,	2021
				Debit	Credit
Cash				4,665,000
Accounts Receivable				4,800,000
Allowance for Doubtful Accounts					150,000
Prepaid Insurance				100,000
Short-Term Note Receivable				100,000
Inventory				9,500,000
Equipment				11,500,000
Accumulated Depreciation - Equipment					4,400,000
Building				1,500,000
Accumulated Depreciation - Building					800,000
Land				250,000
Long-Term Investments				1,100,000
Patent				1,000,000
Goodwill				500,000
Accounts Payable					4,650,000
Salaries and Wages Payable					150,000
Bond Payable - Long Term					5,000,000
Mortgage Payable					1,100,000
Common Stock		Par	$0.01		10,000
APIC					990,000
Retained Earnings					13,650,000
Dividends - Common				$500,000
Sales Revenue					35,300,000
Sales Discounts				325,000
Sales Returns and Allowance				610,000
Cost of Goods Sold				$20,950,000
Selling Expenses				$4,950,000
Administrative Expenses				$2,925,000
Interest Income					85,000
Loss Due to Storm Damage				$75,000
Interest Expense				$150,000
Income Tax Expense				$2,485,000
Gain on Sale of Equipment (Powerhead Division)					$1,700,000
				$67,985,000	$67,985,000

Situation: The controller has requested that you prepare a correct version of the income statement. The income statement on page 2 was automatically generated by the company's SAP accounting system. The problem is that the "system" did not properly account for the "Discontinued Operations," which of course is the Powerhead Division.

Prepare the income statement correctly breaking out the impact of discontinued operations. Note: A 35% tax rate is applied to both continuing and discontinued income.