It is December, 1997, and Sharon Sowers, the CEO of Mallory Services, has decided to sell the clerical division. She has received an offer for $105,000, but is undecided about whether she wishes to complete the sale in 1997 or 1998. She is currently evaluating the effects of the sale on 1997 reported net income. Income from continuing operations for 1997 is estimated to be $950,000 (excluding the activities of the clerical division), and information about the clerical division is provided below. The company’s tax rate is 35 percent. Year Ended 1997 December 1997 Revenues $35,000 Assets $93,000 Expenses 23,000 Liabilities 26,000 REQUIRED:

a. Prepare the 1997 income statement beginning with net income from continuing operations assuming that Sharon accepts the offer, and explain how a user might interpret the items on the income statement in terms of earnings persistence.

b. Prepare the 1997 income statement beginning with net income from continuing operations assuming that Sharon chooses not to sell the division in 1997, and explain how a user might interpret the items on the income statement in terms of earnings persistence.

c. Describe some of the important trade-offs faced by Sharon as she decides whether to com¬ plete the sale in 1997 or 1998.