The following condensed income statements of the Jackson Holding Company are pre

Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2016 and 2015:

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 $5,180,000. Book value of the division’s assets was $4,520,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:

Assume an income tax rate of 30%.

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.)

Assume that by December 31, 2016, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $5,180,000. 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.)

3.

Assume that by December 31, 2016, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $3,960,000. 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.)

2016 2015   Sales $ 15,600,000 $ 10,200,000   Cost of goods sold 9,500,000 6,300,000   Gross profit 6,100,000 3,900,000   Operating expenses 3,440,000 2,840,000   Operating income 2,660,000 1,060,000   Gain on sale of division 660,000 — 3,320,000 1,060,000   Income tax expense 996,000 318,000   Net income $ 2,324,000 $ 742,000

Explanation / Answer

JACKSON HOLDING COMPANY Comparative Income Statement For the year ended DEC 2016 2015 1 Income from continuing operation before income taxes $ 3,090,000.00 $ 1,390,000.00 Income Tax Expense $      927,000.00 $      417,000.00 Income from continuing operation $ 2,163,000.00 $      973,000.00 Discontinue Operation Income (loss) from operations of discontinued component( Included gain on disposal of $6,60,000 in 2016 $      230,000.00 $   (330,000.00) Income Tax benefit (Expense) $      (69,000.00) $        99,000.00 Income (Loss) on discontinue operation $      161,000.00 $   (231,000.00) Net Income $ 2,324,000.00 $      742,000.00 Working 2016 2015 Income from continuing operation before income taxes Unadjusted $ 2,660,000.00 $ 1,060,000.00 Add: Loss from disconinue opeartion $      430,000.00 $      330,000.00 Adjusted $ 3,090,000.00 $ 1,390,000.00 Income from discontinuing operations Loss form operation $   (430,000.00) $   (330,000.00) Gain on disposal $      660,000.00 Total $      230,000.00 $   (330,000.00) 2 In 2016 income from discontinued operations would include only loss from operations of $4,30,000.Since no impairment loss is indicated ($5,180,000-$4,520,000)=$ 6,60,000 antcipated gain.The anticipated gain on disposal is not recognised until it is realized. Fair Value $ 5,180,000.00 Book Value $ 4,520,000.00 Gain $      660,000.00 loss from operations $   (430,000.00) Total Gain $      230,000.00 3 In 2016 income from discontinued operation would include the loss from operation of $4,30,000 and impairment loss of$560,000 ($4,520,000-$3,960,000) Fair Value $ 3,960,000.00 Book Value $ 4,520,000.00 Loss $   (560,000.00) Loss from operations $   (430,000.00) (Given) Total Loss $   (990,000.00)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.