5. For the year ending December 31, 2021, Olivo Corporation had income from continuing operations before...

5.

For the year ending December 31, 2021, Olivo Corporation had income from continuing operations before taxes of $1,280,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material.

In November 2021, Olivo sold its PizzaPasta restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May 2021. The income from operations of the chain from January 1, 2021, through November was $168,000 and the loss on sale of the chain’s assets was $316,000.
In 2021, Olivo sold one of its six factories for $1,360,000. At the time of the sale, the factory had a book value of $1,180,000. The factory was not considered a component of the entity.
In 2019, Olivo’s accountant omitted the annual adjustment for patent amortization expense of $128,000. The error was not discovered until December 2021.

Required:
Prepare Olivo’s income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2021. Assume an income tax rate of 25%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Expert Solution

Olivo corporation
Income statement ( partial )
Income from Continuing operations before taxes			1460000	( see Working note )
Less:- Income Tax ( 25 % )			365000
Income from Continuing operations			1095000
Discontinued Operations
Loss from disposal of subsidiary	-316000
Add:- Income tax benefit ( 25 % )	-79000	-237000
Gain from the operations of discontinued subsidiary	168000
Less:- Income tax expense ( 25 % )	42000	126000
Loss form discontinued operations ( net of tax )			-111000
Net income			984000

Working note:-
Computation of Income from Continuing operations before taxes :-
Income from Continuing operations before taxes ( as provided )		1280000
Less:- Loss on sale of factory
Sale proceeds	1360000
Less:- book value	-1180000
profit on sale		180000
As restated		1460000

Omission of patent amortisation will gi in retained earnings.

ekkarill92 answered 2 years ago

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