Question

(b) (1.5 pts) Gray Claw Inc. produces a variety of beverages. During 2019, Gray Claw decided to sell its non-alcoholic beverages division. The book value of the non-alcoholic beverages division assets and liabilities were $151,000 and $40,000, respectively. Gray Claw Inc. completed the sale of this division to Falsely Inc. in October 2019 for $99,000, and incurred legal fees of $4,000 associated with the sale. Information about Gray Claw's income is provided below. Gray Claw has an income tax rate of 25% (Gray Claw's fiscal year end = December 31) Income Before Income Tax Expense (FY 2019) Non-alcoholic Beverages Division (50,000) All Other Divisions 440,000 Using the information provided above, present Gray Claw's 2019 income statement starting from Income from Continuing Operations Before Taxes. You do not need to provide EPS calculations 6

Answer 1

Disposal value of discontinued operations		$                99,000
Less: direct expenses (legal)		$                  4,000
Net disposal value of discontinued operations		$                95,000
Net assets of discontinued operations (151000-40000)		$             111,000
(Loss) on disposal		$             (16,000)
Tax benefits (16000*25%)		$                  4,000
Loss on disposal of discontinued operations (net of tax)		$             (12,000)

Gray Claw Inc.
Partial Income statement
For the year ended Dec 31, 2019
Income from continuing operation before income tax		$             440,000
Less: Income tax expense (440000*25%)		$             110,000
Income from continuing operations		$             330,000
Discontinued operations
Loss from operations on discontinued operations (net of tax) (50000*(1-0.25)	$       (37,500)
Loss on disposal of discontinued operations (net of tax)	$       (12,000)	$             (25,500)
Net income		$             304,500