For 2015, Boyd Corporation had pretax income of $7,500,000. In addition, Boyd di

Question

For 2015, Boyd Corporation had pretax income of $7,500,000. In addition, Boyd discontinued and disposed of segment E on July 1. Segment E had a pretax income of $1,000,000 and was sold for $1,850,000. Boyd purchased Segment E on January 1, 2008 historical cost was $3,000,000 a salvage value of $600,000 and a useful life of 30 years. The corporation’s tax rate is 40%. The corporation had 6,000,0000 common shares issued throughout the year, and 4,500,000 shares of common stock outstanding at the beginning of the year and 5,500,000 outstanding at the end of the year. Boyd also had 5% preferred stock, 100,000 shares issued at $100 par. Prepare a partial income statement for Boyd beginning with income before taxes. Include EPS.

Explanation / Answer

Working Note:

Annual depreciation on segment = (3000000 - 600000)/30

= 80000

Book value on date of sale = 3000000 - 80000 x 8

= 2360000

Loss on sale = 2360000 - 1850000

= 510000

Income befor Taxes 7500000 Add: Extraordinary income Sale of segment (510000) Income before taxes 6990000 Less Taxes @ 40% 2796000 Income after tax 4194000 Less: Preference dividend 500000 Income available for distribution 3694000 No. of share 5500000 EPS 0.67

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