The following condensed income statements of the Jackson Holding 2018 and 2017 C

Question

The following condensed income statements of the Jackson Holding 2018 and 2017 Company are presented for the two years ended December 31, Sales Cost of goods sold Gross profit Operating expenses Operating income Gain on sale of division $16, 809,e00 $11,40e,e0e 10,180,00 6,989,800 6,709,880 4,500,000 3,920,e00 3,320,809 2,780,000 1,180,980 789,989 Income tax expense Net income 3,560,880 1,180,009 1,424,000 472,000 2,136,000 788,000 On October 15. 2018, 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, 2018, for $5,540,000. Book value of the division's assets was $4,760,000. The division's contribution to Jackson's operating income before-tax for each year was as follows 2018 $498,000 2017 $390,000 Assume an income tax rate of 40%. Required: (In each case, net any gain or loss on sale of division with annual income or loss from the division and show the tox effect on a separate line) 1. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures 2. Assume that by December 31, 2018, 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 $5,540,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures 3. Assume that by December 31, 2018, 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 $4,080,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.

Explanation / Answer

1

Jackson Holding company

Comparative income statement

For the year ended December 31

2018

2017

Income from continuing operating before income taxes

3270000

1570000

Income tax expense at 40%

1308000

628000

Income from continuing operations

1962000

942000

Discontinued operations:

Income/Loss from operations of discontinued component

290000

-390000

Income tax benefit (expense)

-116000

156000

Income/loss on discounted operations

174000

-234000

Net income

1788000

1176000

1) Income from continuing operations before income taxes

unadjusted balances

2780000

1180000

Add: Loss from discontinued operations

490000

390000

Adjusted

3270000

1570000

2)   Income from discounting operations

Loss from operations

-490000

-390000

Gain on disposal

780000

290000

-390000

Jackson Holding company

Comparative income statement

For the year ended December 31

2018

2017

Income from continuing operating before income taxes

3270000

1570000

Income tax expense at 40%

1308000

628000

Income from continuing operations

1962000

942000

Discontinued operations:

Income/Loss from operations of discontinued component

-490000

-390000

Income tax benefit (expense)

196000

156000

Income/loss on discounted operations

-294000

-234000

Net income

1788000

1176000

2018 net income would include only 49000 from the loss from operations. as it does not indicate any impairment loss, none would be included (5540000-5540000)

3

Jackson Holding company

Comparative income statement

For the year ended December 31

2018

2017

Income from continuing operating before income taxes

3270000

1570000

Income tax expense at 40%

1308000

628000

Income from continuing operations

1962000

942000

Discontinued operations:

Income/Loss from operations of discontinued component

-1950000

-390000

Income tax benefit (expense)

780000

156000

Income/loss on discounted operations

-1170000

-234000

Net income

1788000

1176000

2018 net income would include loss from operation and also impairment loss 14,60,000 (5540000-4080000)

1

Jackson Holding company

Comparative income statement

For the year ended December 31

2018

2017

Income from continuing operating before income taxes

3270000

1570000

Income tax expense at 40%

1308000

628000

Income from continuing operations

1962000

942000

Discontinued operations:

Income/Loss from operations of discontinued component

290000

-390000

Income tax benefit (expense)

-116000

156000

Income/loss on discounted operations

174000

-234000

Net income

1788000

1176000

1) Income from continuing operations before income taxes

unadjusted balances

2780000

1180000

Add: Loss from discontinued operations

490000

390000

Adjusted

3270000

1570000

2)   Income from discounting operations

Loss from operations

-490000

-390000

Gain on disposal

780000

290000

-390000

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