Question

Chance Company had two operating divisions, one manufacturing farm equipment and the 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 September 1, 2016, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2016, at a price of $640,000. The book value of the division’s assets was $1,090,000, resulting in a before-tax loss of $450,000 on the sale. The division incurred a before-tax operating loss from operations of $120,000 from the beginning of the year through December 15. The income tax rate is 30%. Chance’s after-tax income from its continuing operations is $440,000.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. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

Answer 1

Answer:

Net income/loss 41,000

Earning per share:

Net Income 0.41

Explanation:

Preparation of an income statement for 2016 beginning with income from continuing operations

CHANCE COMPANY

Partial Income Statement

For the Year Ended December 31,2021

Income from continuing operations[a] $ 440,000

Discounted operations:

Loss from operations of discontinued component $ (570,000)

Income tax benefit $ 171,000

Loss on discontinued operations[b] $ (399,000)

Net income /[loss][a-b] $ 41,000

Earning per share: 100,000 Shares Outstanding

Income from continuing operations($ 440,000/100,000 Shares) $ 4.40

Loss from discontinued operations($ 399,000/100,000 Shares) $ (3.99)

Net Income($ 41,000/100,000 Shares) $0.41

Calculation of Loss from discontinued operations:

Loss from discontinued operations

Loss on sale of assets(1,090,000 - 640,000) $ (450,000)

Operating loss $ (120,000)

Total before -tax loss $ (570,000)

Less: Income Tax benefit(570,000*30%) $ 171,000

Loss after tax $ (399,000)