The unaudited income statement of XYZ corp are reproduced below. Year 8 Year 7 S
ID: 2443655 • Letter: T
Question
The unaudited income statement of XYZ corp are reproduced below.Year 8 Year 7
Sales - $1,100 $900
Costs and Expenses - $990 $860
Loss on Asset disposal - $10
Income before Taxes - $100 $40
Tax Expense - $50 $20
Net Income $50 $20
On 8/15/X8 the company decided to discontinue its manufacturing division. The business was sold on 12/31/X8 at book value except for a building with a book value of $25 that was sold for $15. operation of the division were:
Sales Income
Year7 300 8
1/1/X8 to 8/15/X8 250 -3
8/16/X8 to 12/31/X8 75 -1
Required
correct the year 7 and year 8 income statement to reflect the proper reporting of discontinued operations
Explanation / Answer
Problem 6-1 (30 minutes)
The income statements of Disposo Corp. should be shown as follows
Year 8 Year 7
Sales..................................................................................... $775 $600
Costs and expenses ....................................................... (657) (576)
Pretax income.................................................................... 118 24
Tax expense....................................................................... (59) (12)
Income from continuing operations ........................... $ 59 $ 12
Discontinued operations:
Operations (net of tax) [a]......................................... (3) 8
Disposal (net of $6 tax) [b]........................................ (6)
Net Income.......................................................................... $ 50 $ 20
[a] Represents net income (loss) from operations for Year 7 and for Year 8 until August 15.
[b] Represents:
Loss from operations August 15 to December 31........................ $ (1)
Loss on sale of assets (after $5 tax)............................................... (5)
Total................................................................................................... $ (6)
The $10 loss and related tax benefit of $5 would still be recorded (anticipated) at December 31, Year 8 (the asset would be reduced by $10 to market value).
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