Canadian Accounting:

The CEO of a company is planning on selling the Merchandising Division at the end of 20x6 so that the company can concentrate on the Construction side of the business. The CEO is interested in determining the impact on the 20x6 statement of income if this were to take place. The following are excerpts from the 20x6 operating budget.

	Merchandising Division	Construction Division
Revenue	$21,000,000	$35,000,000
Cost of revenue	13,000,000	18,000,000
Administrative expenses	3,000,000	4,000,000
Selling expenses	1,800,000	2,200,000
Depreciation expense	200,000	350,000
Other expenses	1,000,000	1,500,000
Income tax expense (30%)	600,000	2,685,000
Net income	$ 1,400,000	$6,265,000

The CFO estimates that the carrying value of the Merchandising Division at the end of 20x6 will be $5,500,000 and has provided you with the following other estimates:

	Merchandising Division
Fair value of assets	$5,000,000
Estimated costs to sell	450,000

Future cash flow budget
20x7	$500,000
20x8	500,000
20x9	500,000
20x10	500,000
20x11 20x24	400,000

The relevant discount rate is 6%.

Required - Prepare a proforma statement of income for 20x6 on the assumption that the Merchandising Division was put up for sale on December 31, 20x6.