Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2018 and 2017: 4 2018 2017 Sales Cost of Goods Sold Gross Profit Operating Expense Operating Income Gain on sale of division $15,000,000 $9,600,000 9.200,000 6,000,000 5,800,0003,600,000 200,000 2,600,000 2,600,000 1,000,000 600,000 Income Tax expense Net Income 3,200,0001,000,000 1,280,000 400,000 S1,920,000 $ 600,000 On October 15, 2018, 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, 2018, for $5,000,000. Book value of the division's assets was $4,400,000. The division's contribution to Jackson's operating income before-tax for each year was as follows: 2018: $400,000 2017 S300,000 Assume an income tax rate of 40 percent Prepare a revised income statement for 2018 according to GAAP, beginning with income from continuing operations before income taxes. Ignore EPS disclosures Assume that by December 31, 2018, 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 $5,000,000. What would be the amount presented for discontinued operations? Provide supporting calculations and/or explanations Assume that by December 31, 2018, 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 $3,900,000. What would be the amount presented for discontinued operations? Provide supporting calculations and/or explanations

Answer 1

1. JACKSON HOLDING COMPANY Income Statements (partial) For the years ended December 31 Particulars 2018 2017 Income from continuing operations, before taxes Income tax expense $2,200,000 $700,000 $880,000 $280,000 $420,000 Income from continuing operations Discontinued operations: Income (loss) from discontinued component (including gain on disposal of in 2018) Income tax benefit (expense) Income(loss) on discontinued operations Net Income $1,320,000 $300,000 $1,000,000 ($400,000) $600,000 ($120,000) $180,000 $1,920,000 $600,000 Alncome from continuing operations, before taxes Operating income with component included Less: Income from discontinued operations Income from continuing operatons before taxes $2,600,000 $400,000 $2,200,000 Working Notes: Income from continuous operation for 2018 $2,600,000-$400,000 $2,200,000 Income from continuous operation for 2017 =$1,000,000-$300,000 $7,000,000 Income discontinued component for 2018 $600,000+$400,000 $1,000,000

2. Requirement 2 Particulars Income from continuing operations, before taxes Income tax expense Income from continuing operations Discontinued operations: Income (loss) from discontinued component Income tax benefit (expense) Income(loss) on discontinued operations 2018 $2,200,000 $880,000 $1,320,000 $400,000 ($160,000) $240,000 Net Income $1,560,000 3. Requirement 3 Particulars Income from continuing operations, before taxes 2018 $2,200,000 $880,000 Income tax expense Income from continuing operations Discontinued operations: Income (loss) from discontinued component (including impariment loss of $ 500,000) Income tax benefit (expense) Income(loss) on discontinued operations $1,320,000 ($100,000) $40,000 ($60,000) $1,260,000 Net Income Note: Income (loss) from discounted component = $3,900,000-$4,400,000+$400,000 ($100,000)