Question

Esquire Comic Book Company had income before tax of $1,000,000 in 2021 before considering the following material items:
1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $340,000. The division generated before-tax income from operations from the beginning of the year through disposal of $500,000.
2. The company incurred restructuring costs of $80,000 during the year.

 

Required:
Prepare a 2021 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 25%. Ignore EPS disclosures.

Answer 1

ESQUIRE COMIC BOOK COMPANY
Partial Income Statement
For the Year Ended December 31, 2021
Income from continuing operations* ..............................	$690,000
Discontinued operations:
Income from operations of discontinued component
(including loss on disposal of $340,000)** ............................	160,000
Income tax expense*** ...............................................	40,000
Income on discontinued operations ................................	120,000
Net income......................................................................	$810,000

 

* Income from continuing operations:

 

       Income before considering additional items                     $1,000,000

       Decrease in income due to restructuring costs                      (80,000)

        Income from continuing operations before 

         income taxes                                                                              920,000

       Income tax expense (25%)                                                        (230,000)

        Income from continuing operations                                    $ 690,000

 

** Income from operations of discontinued component, before tax: 

 

        Income from operations                                  $ 500,000

          Loss on sale of assets                                      (340,000) 

        Income from operations of

 discontinued component, before tax                  $ 160,000

 

*** $160,000 × 25%

discontinued component, before tax                  $ 160,000