Question

Exercise 4-7 (Algo) Income statement presentation; discontinued operations; restructuring costs [LO4-1, 4-3, 4-4] Esquire Comic Book Company had income before tax of $1,650,000 in 2021 before considering the following material items: Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $405,000. The division generated before-tax income from operations from the beginning of the year through disposal of $630,000. The company incurred restructuring costs of $70,000 during the year. Required: Prepare a 2021 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 25%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Net income = $1,353,750

Note: See the income statement below.

Explanation:

Before preparing the income statement, the following calculations are done first:

Income from operations of discontinued component = Income before-tax generated by the division - Before-tax loss on disposal = $630,000 - $405,000 = $225,000

Income from continuing operations = Income before tax - Restructuring costs = $1,650,000 - $70,000 = $1,580,000

The income statement can now be prepared as follows:

                Esquire Comic Book Company

                   Partial Income Statement  

          For the year ended December 31, 2021

Details                                                                        $  

Income from continuing operations               1,580,000

Discontinued operations gain (loss):  

Income from discontinued component            225,000

Total income before tax                                  1,805,000

Tax expenses (1,805,000.00 * 25%)                (451,250)

Net income                                                      1,353,750