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, 2018 and 2017: 2018 2017 Sales Cost of goods sold Gross profit Operating expenses Operating income Gain onsale of division $15,900,000 $10, 500,000 9,650,000 6,450,000 6,250,000 4,050,000 3,560,000 2,960,000 2,690,000 1,090,000 690,000 Income tax expense Net income 3,380,000 1,090,000 1,014,000 327,000 $ 2,366,000 763,000 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 $5,270,000. Book value of the division's assets was $4,580,000. The division's contribution to Jackson's operating income before-tax for each year was as follows 2018 $445,000 2017 $345,000 Assume an income tax rate of 30%

Explanation / Answer

1. Revised Income Statement.

Particulars

2018

2017

Income from Continuing Operations

2,690,000

1,090,000

Less: Income from Discontinued operations

(445,000)

(345,000)

Less: Income Taxes @30%

(673,500)

(223,500)

Income from continuing operations

1,571,500

521,500

Discontinued operations

Income from discontinued operations along with gain on sale but before income tax

(445,000 + 690,000) = 1,135,000

345,000

Less: Income Tax @ 30%

(340,500)

103,500

Income on discontinued operations

794,500

241,500

2366,000

763,000

2. The treatment in case of held for sale business is same. Gain or loss on disposal is calculated on fair value of business.

Particulars

2018

2017

Income from Continuing Operations

2,690,000

1,090,000

Less: Income from Discontinued operations

(445,000)

(345,000)

Less: Income Taxes @30%

(673,500)

(223,500)

Income from continuing operations

1,571,500

521,500

Discontinued operations

Income from discontinued operations along with gain on sale but before income tax

(445,000 + 690,000) = 1,135,000

345,000

Less: Income Tax @ 30%

(340,500)

103,500

Income on discontinued operations

794,500

241,500

2366,000

763,000

Particulars

2018

2017

Income from Continuing Operations

2,690,000

1,090,000

Less: Income from Discontinued operations

(445,000)

(345,000)

Less: Income Taxes @30%

(673,500)

(223,500)

Income from continuing operations

1,571,500

521,500

Discontinued operations

Income from discontinued operations along with gain on sale but before income tax

(445,000 + 690,000) = 1,135,000

345,000

Less: Income Tax @ 30%

(340,500)

103,500

Income on discontinued operations

794,500

241,500

2366,000

763,000

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