In: Accounting
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020:
2021 | 2020 | |||||
Sales revenue | $ | 16,600,000 | $ | 11,200,000 | ||
Cost of goods sold | 10,000,000 | 6,800,000 | ||||
Gross profit | 6,600,000 | 4,400,000 | ||||
Operating expenses | 3,840,000 | 3,240,000 | ||||
Operating income | 2,760,000 | 1,160,000 | ||||
Gain on sale of division | 760,000 | — | ||||
3,520,000 | 1,160,000 | |||||
Income tax expense | 880,000 | 290,000 | ||||
Net income | $ | 2,640,000 | $ | 870,000 | ||
On October 15, 2021, Jackson entered into a tentative agreement to
sell the assets of one of its divisions. The division qualifies as
a component of an entity as defined by GAAP. The division was sold
on December 31, 2021, for $5,480,000. Book value of the division’s
assets was $4,720,000. The division’s contribution to Jackson’s
operating income before-tax for each year was as follows:
2021 | $480,000 |
2020 | $380,000 |
Assume an income tax rate of 25%.
Required: (In each case, net any gain or
loss on sale of division with annual income or loss from the
division and show the tax effect on a separate
line.)
1. Prepare revised income statements according to
generally accepted accounting principles, beginning with income
from continuing operations before income taxes. Ignore EPS
disclosures.
2. Assume that by December 31, 2021, the division
had not yet been sold but was considered held for sale. The fair
value of the division’s assets on December 31 was $5,480,000.
Prepare revised income statements according to generally accepted
accounting principles, beginning with income from continuing
operations before income taxes. Ignore EPS disclosures.
3. Assume that by December 31, 2021, the division
had not yet been sold but was considered held for sale. The fair
value of the division’s assets on December 31 was $4,060,000.
Prepare revised income statements according to generally accepted
accounting principles, beginning with income from continuing
operations before income taxes. Ignore EPS disclosures.
|
Answer 1. | ||
JACKSON HOLDING COMPANY | ||
Comparitive Income Statements (in part) | ||
For the Years Ended December 31 | ||
2021 | 2020 | |
Income from continuing operations before income taxes | 3,240,000.00 | 1,540,000.00 |
Income tax Benefit (expense) - 25% | (810,000.00) | (385,000.00) |
Income from continuing operations | 2,430,000.00 | 1,155,000.00 |
Discontinued Operations Gain (Loss) | 280,000.00 | (380,000.00) |
Income tax Benefit (expense) - 25% | (70,000.00) | 95,000.00 |
Income (Loss) from operations of discontinued Component | 210,000.00 | (285,000.00) |
Net Income | 2,640,000.00 | 870,000.00 |
2021 | 2020 | |
Income from continuing operations before income taxes: | ||
Unadjusted | 2,760,000.00 | 1,160,000.00 |
Add: Loss from from Discontinued Operations | (480,000.00) | (380,000.00) |
Adjusted | 3,240,000.00 | 1,540,000.00 |
2021 | 2020 | |
Income from Discontinued Operations: | ||
Operating Income | (480,000.00) | (380,000.00) |
Gain on Disposal | 760,000.00 | - |
Total | 280,000.00 | (380,000.00) |
Answer 2. | ||
JACKSON HOLDING COMPANY | ||
Comparitive Income Statements (in part) | ||
For the Years Ended December 31 | ||
2021 | 2020 | |
Income from continuing operations before income taxes | 3,240,000.00 | 1,540,000.00 |
Income tax Benefit (expense) - 25% | (810,000.00) | (385,000.00) |
Income from continuing operations | 2,430,000.00 | 1,155,000.00 |
Discontinued Operations Gain (Loss) | (480,000.00) | (380,000.00) |
Income tax Benefit (expense) - 25% | 120,000.00 | 95,000.00 |
Income (Loss) from operations of discontinued Component | (360,000.00) | (285,000.00) |
Net Income | 2,070,000.00 | 870,000.00 |
Answer 3. | ||
JACKSON HOLDING COMPANY | ||
Comparitive Income Statements (in part) | ||
For the Years Ended December 31 | ||
2021 | 2020 | |
Income from continuing operations before income taxes | 3,240,000.00 | 1,540,000.00 |
Income tax Benefit (expense) - 25% | (810,000.00) | (385,000.00) |
Income from continuing operations | 2,430,000.00 | 1,155,000.00 |
Discontinued Operations Gain (Loss) | (1,140,000.00) | (380,000.00) |
Income tax Benefit (expense) - 25% | 285,000.00 | 95,000.00 |
Income (Loss) from operations of discontinued Component | (855,000.00) | (285,000.00) |
Net Income | 1,575,000.00 | 870,000.00 |
2021 | 2020 | |
Income from Discontinued Operations: | ||
Operating Income | (480,000.00) | (380,000.00) |
Impairment Loss ($4,060,000 - $4,720,000) | (660,000.00) | - |
Total | (1,140,000.00) | (380,000.00) |