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, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $680,000. The book value of the division’s assets was $1,170,000, resulting in a before-tax loss of $490,000 on the sale.

The division incurred a before-tax operating loss from operations of $180,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance’s after-tax income from its continuing operations is $630,000.

Required:
Prepare an income statement for 2021 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

CHANCE COMPANY Partial income statement For the Year Ended December 31, 2021
Income from continuing operations		630,000
Discontinued operations:
Loss from opearation of discontinued component	-670,000
Income tax benefit               ( 670,000 x 25% )	167,500
Loss on discontinued operations		-502,500
Net Income (Loss)		127,500
Earning per share :
Income from continuing operations ( $ 630,000 / 100,000 shares )		$ 6.30
Loss from discontinued operations ( $ 502,500 / 100,000 Shares )		($ 5.03)
Net Income		$ 1.27
Workings :
Loss from opearation of discontinued component                  = Sale price (-) Book Value of Assets (-) loss from Operations                  = $ 680,000 (-) $ 1,170,000 (-) $ 180,000                  =     ($ 670,000)