Question

In: Accounting

The following condensed income statements of the Jackson Holdings company are presented for the two years...

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.

Solutions

Expert Solution

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


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