Question

Chance company had two operating divisions, one manufacturing farm equipment and other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on Sept. 1, 2016, the company adopted a plan to sell the assets of the division.
The actual sale was completed on Dec. 15, 2016, at the price of $600,000. The book value of the division's assets was $1,000,000, resulting in a before-tax loss of $400,000 on the sale. The division incurred a before-tax operating loss from operations of $130,000 from the beginning of the year through Dec. 15. The income tax rate is 40%. Chances after-tax income from its continuing operations is $350,000.
Required:
Prepare an income statement for 2016 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year.

Answer 1

Answer:

-21,000

Explanation:

We can calculate the net income by Adding/deducting the gain/loss on the discontinued operations from the gain/loss of the continuing operations.

INCOME STATEMENT

Income from continuing Operations                                   $350,000

Discontinued Operations

Loss from discontinued operations(w)                                -530,000

Income tax benefit                                                                $159,000

(400,000+130,000) x 30%

Net Income                                                                           -21,000

Earning per share                              

Continuing Operations                               $3.5

(350,000/100,000)

Discontinued Operations                         -$5.3

(-530,000/100,000)

Net Income                                                 -$1.8

Working

Sale value of the segment                            $600,000

Book value of the segment                          ($1,000,000)

loss on sale of segment                                -$400,000

Loss from the Operations of the segment   -$130,000

Loss on discontinued operation                    -$530,000