Question

Esquire Comic Book Company had income before tax of $1,150,000 in 2016 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 $365,000. The division generated before-tax income from operations from the beginning of the year through disposal of $530,000. Neither the loss on disposal nor the operating income is included in the $1,150,000 before-tax income the company generated from its other divisions.
2.	The company incurred restructuring costs of $70,000 during the year.

  

Required:

Prepare a 2016 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 40%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

ESQUIRE COMIC BOOK COMPANY
Partial Income Statement
For the Year Ended December 31, 2016
Income from continuing operations	$648,000
Discontinued operations gain (loss):
Income from operations of discontinued component	$165,000
Income tax expense	($66,000)
Income on discontinued operations	$99,000
Net income	$747,000
Explanation:
Income from operations of discontinued component (including loss on disposal of $365,000) = 165000
Income from continuing operations:
Income before considering additional items	$1,150,000
Decrease in income due to restructuring costs	($70,000)
Before-tax income from continuing operations	$1,080,000
Income tax expense (40%)	($432,000)
Income from continuing operations	$648,000