Esquire Comic Book Company had income before tax of $1,250,000 in 2016 before co

Question

Esquire Comic Book Company had income before tax of $1,250,000 in 2016 before considering the following material items: 1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $375,000. The division generated before-tax income from operations from the beginning of the year through disposal of $550,000. Neither the loss on disposal nor the operating income is included in the $1,250,000 before-tax income the company generated from its other divisions. 2. The company incurred restructuring costs of $80,000 during the year. Required: Prepare a 2016 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 40%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Explanation / Answer

ESQUIRE COMIC BOOK COMPANY Income Statement For the Year Ended December 31, 2016 Income from continuing operations * $702,000 Discontinued operations: Income from operations of discontinued component 550000 Loss on disposal of a divison -375000 175,000    Income tax expense   -70,000    Income on discontinued operations   105,000 Net income   $807,000 Income before considering additional items $1,250,000 Decrease in income due to restructuring costs -80,000     Before-tax income from continuing operations 1,170,000 Income tax expense (40%) -468,000     Income from continuing operations $702,000

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