In: Accounting
The following condensed income statements of the Jackson Holdings company are presented for the two years ended December 31, 2021 and 2020.
2021 2020
Sales Revenue $15,900,00 $10,500,000
Cost of goods sold 9,650,000 6,450,000
Gross profit 6,250,000 4,050,000
Operating expenses 3,560,000 2,960,000
operating income 2,690,000 1,090,000
gains on sale of divison 690,000 -
3,380,000 1,090,000
Income tax expenses 845,000 272,500
Net income 2,535,000 817,500
On October 15, 2021 Jackson entered into a tentative agreement to seel all the assets of one of its divisons. the divison qualifies as a component of an entity as defined by GAAP. the division was sold on december 31, 2021 for $5,270,000. Book value of the divisions assets was $4,580,000. The division's contribution to Jackson's operating income before-tax for each year was as follows:
2021 $445,000
2020 $345,000
Assume an income tax rate of 25%
Required
1. Prepare revised income statements according to GAAP, beginning with income from continuing operations before income taxes, Ignore EPS disclosures.
2. Asume that by december 31,2021 the divions had not yet been sold but was considered held for sale. The fair value of the divisons assets on december 31 was $5,270,000. prepare revised income statements accoring to GAAP, beginning with income from continuing operations before income taxes. ignore EPS disclosures.
3. Assume that by december 3, 2021, the division had not yet been sold but was considered held for sale. The fair value of the divisions asets on December 31 was $3,990,000. Prepare revised income statements according to GAAP, beginning with income from continuing operations before income taxes, ignore EPS disclosures.
Answer:
1) Income Statement:
Particulars |
Year 2021 |
Year 2020 |
Income from continuing operations |
2245000 |
745000 |
Income Tax Expense @ 25% |
(561250) |
(186250) |
Income from continuing operations |
1683750 |
558750 |
Discontinued operations |
||
Income from discontinued operations |
1135000 |
345000 |
Income Tax Expense @ 25% |
(283750) |
(86250) |
Income from discontinued operations |
851250 |
258750 |
Net Income |
2535000 |
817500 |
Income from Continued operations = Operating income – The division’s contribution to jackson’s operating income before tax
For year 2021, 2,690,000 – 445,000 = 2,245,000
For year 2020, 1,090,000 – 345,000 = 745,000
2) Income Statement;
Particulars |
Year 2021 |
Year 2020 |
Income from continuing operations before income taxes |
2245000 |
745000 |
Income Tax expense @25% |
(561250) |
(186250) |
Income from Continuing operations |
1683750 |
558750 |
Discounted operations gain (loss) |
||
Income from discontinued operations |
445000 |
345000 |
Income Tax expense @25% |
(111250) |
(86250) |
Income from discontinued operations |
333750 |
258750 |
Net Income |
2017500 |
817500 |
3) Income Statement:
Particulars |
Year 2021 |
Year 2020 |
Income from continuing operations before income taxes |
2245000 |
745000 |
Income Tax expense @25% |
(561250) |
(186250) |
Income from Continuing operations |
1683750 |
558750 |
Discounted operations gain (loss) |
||
Income from discontinued operations |
-145000 |
345000 |
Income Tax expense @25% |
36250 |
(86250) |
Income from discontinued operations |
-108750 |
258750 |
Net Income |
1575000 |
817500 |
Discontinued operations gain/loss = The division’s contribution to jackson’s operating income before tax – (Book value of the division’s assets – Fair value of the divisions assets)
For year 2021, 445,000 – (4,580,000 – 3,990,000) = -145,000
For year 2020, = 345,000
Note: Net Income = Income from continuing operations + Income from discontinued operations