Be sure you remove the discontinued sales, cost of goods old and selling and general expenses from the continuing operations section of the income statement. Discontinued items are currently in the amounts shown. All discontinued items for the entire year must be removed to arrive at Net income from continuing operations. One thing you must really watch is whether discontinued operations are still in the body of the income statement (and thus have to be removed, as in this problem) or have they already been pulled.
Anticipated losses on sales of discontinued assets must be provided for, but no entry may be made for anticipated gains.
Hiddenport The Hiddenport Company had prepared the following tentative income statement for the year ended December 31, 2019. Hiddenhport Company Income Statement For the year ended December 31, 2019 Sales 2,200,000 Cost of Goods Sold 1,100,000 Gross Profit 1,100,000 Selling and General Expenses 670,000 Loss on Earthquake 200,000 Gain on equipment (20,000) Interest Expense 10,000 860.000 Net Income before taxes 240,000 Income taxes at 30% 72.000 Net Income 168,000 The following information becomes available to you before the 2019 statements are issued. 1. On July 1, 2019, the decision was made to discontinue the sale of the women's accessories. Operating results for the segment are included in the above income statement Results for the discontinued segment were as follows: Sales Cost of goods sold Selling and general expenses Jan. 1 - June 30, 2019 250.000 150,000 90,000 July 1-Dec 31, 2019 100.000 80,000 60,000 2. There will continue to be some operations in the first two months of 2020. It is predicted that the operating loss will be $15,000 3. Late in 2019, equipment used by this segment with a book value of $130,000 was sold for $150,000. The gain is reflected in the above income statement. Remaining equipment used by this segment has a book value of $70,000 and it is anticipated that it will sell for a net price of $40,000 4. You might think the earthquake loss is extraordinary, but it is longer shown net of tax. It is just "other" 5. The inventory balance on Dec 31, 2018 (end of prior year) was discovered to be overstated by $12,000. All inventory involved pertained to continuing operations. 6. Interest expense applicable to financing of inventory of $6,000 is included in Selling and General Expenses. 7. Retained earnings on Dec. 31, 2018 was $340,000. Dividends paid during 2019 were $30,000 A. Prepare in good form, a corrected multiple step income statement for 2019 (Ignore information in part C) B. Prepare a statement of retained earnings for December 31, 2019 (ignore information in Part C). C. Assume during 2020 the discontinuance of the women's accessories division was completed with the following results. Cash for sale of equipment with original book value of $70,000 was $53,000 Operations: sales $20,000, cost of goods sold $17,000, expenses $12,000 Using this information prepare in good form the discontinued operations section of the 2019 Income Statement--again assuming a 30% tax rate
