Question
I need help with this problem. I posted it already once, but got vey confusing answer. Can sombody explain it to me. Please. The following
I need help with this problem. I posted it already once, but got vey confusing answer. Can sombody explain it to me. Please.
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2016 and 2015: |
2016 | 2015 | |||
Sales | $ | 17,000,000 | $ | 11,600,000 |
Cost of goods sold | 10,200,000 | 7,000,000 | ||
Gross profit | 6,800,000 | 4,600,000 | ||
Operating expenses | 4,000,000 | 3,400,000 | ||
Operating income | 2,800,000 | 1,200,000 | ||
Gain on sale of division | 800,000 | |||
3,600,000 | 1,200,000 | |||
Income tax expense | 1,080,000 | 360,000 | ||
Net income | $ | 2,520,000 | $ | 840,000 |
On October 15, 2016, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2016, for $5,600,000. Book value of the divisions assets was $4,800,000. The divisions contribution to Jacksons operating income before-tax for each year was as follows: |
2016 | $500,000 | loss |
2015 | $400,000 | loss |
Assume an income tax rate of 30%. |
Required: (In each case, net any gain or loss on sale of division with annual income or loss from the division and show the tax effect on a separate line) | |||||||||||||||||||||||||||||||||||||||||||
1. | Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.
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2. | Assume that by December 31, 2016, the division had not yet been sold but was considered held for sale. The fair value of the divisions assets on December 31 was $5,600,000. How would the presentation of discontinued operations be different from your answer to requirement 1? (Amounts to be deducted should be indicated with a minus sign.)
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