Question

Halfway through this problem and I'm stuck. Not sure what I'm doing wrong as the online answers are saying it is incorrect.

		2021			2020
Sales revenue	$	15,500,000		$	10,100,000
Cost of goods sold		9,450,000			6,250,000
Gross profit		6,050,000			3,850,000
Operating expenses		3,400,000			2,800,000
Operating income		2,650,000			1,050,000
Gain on sale of division		650,000			—
		3,300,000			1,050,000
Income tax expense		825,000			262,500
Net income	$	2,475,000		$	787,500

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 $5,150,000. Book value of the division’s assets was $4,500,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:

2021	$425,000
2020	$325,000

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 $5,150,000. 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 $3,950,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.

Required 1 Required 2 Required 3 Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.) JACKSON HOLDING COMPANY Comparative Income Statements (in part) For the Years Ended December 31 2021 Income from continuing operations before income taxes $ 2,225,000 $ Income tax benefit (expense) (556,250) 2020 725,000 (181,250) 1,668,750 543,750 Income from continuing operations Discontinued operations gain (loss) Income (loss) from operations of discontinued component Income tax benefit (expense) Income from discontinued operations Net income 0 0 $ 1,668,750 $ 543,750 Required 1 Required 2 >

Answer 1

- Dan Jackson Holding Company Comparative Income Statement (in part) Year Ended December 31 for the 2020 $ 125,000 Particulars 2021 Income from continuing $2,225,000 Operations before Income Tanes lessor Pincome Tause Expense@sed (556,250) Income from Continuing $ 1,668.750 Operations (181,250) - $ 543.750 $325.000 (81,250) Dis continuing Operations. Income (ross) from $ 425,000 Operation of discontin nued Component - Expenses lexo Pincome tax Exponsellery (106,250) @ 25% = - Addo Gain on sale of 487,500 Dis continued Operations (Net off Tanes) [See Note ② $ 806,250 $243,750 Income from Dis continued Operations Net Income. $2,475,000 $787,500

Ilonding Notes : Income from continuing Particulars Operations : 2021 2020 $ 1.050,000 Total Operating Descome $2,650,000 Ley Operating Percome from (425,000) Discoudhuing Operations (325,000 Income from Continuing Operating $2,225,000 $ 725.000 O 0 202.) Gain on sale of Discontinued Operations Net off Pares) Gain on sale on sale of Discontinued Operations $ 650,000 Less : Income Tax Expense @ 25% (162,500) 650,000 X9S $ \ 62,500 100 $ 487,500 Gain on sale of Discontinued 2 Operations (Net off Tases). 2021 Note : 2021 Income Tan Expense @ 25% 2,225 000 x 25 556,250 100 725,000 X 25 100 181.250

Muy Ctiven . • Note: since Operation has not be sold and then there is not impairment loss Pudicated fair value of Division's Assets $5,150,000 . Less : Book value of Division's Assets (4,500,000 Anticipated Gain $ 650.000 je potrebe Therefore, be Antichuted. The anticipated Disposal will Gain on Disposal is not recognized untill it is realised following year, , Po

2021 Jackson Holding Company Comparative Income statement (in Part for the year Ended December 31 Particulars 2020 Income from Continuing Operation $0,225,000 $725,000 before Pincome taries (as per working Notes in Q 1) lexos Palome Tese Eupenye mese (556,250) (181,250) Income from Continuing Operating $1,668,750 $543, 750 Discontinueel Operationdo Income from Discontinued $ 425,000 $325,000 Operations AAN C Add: Gain on Disposal of Discontinued Operations (see Note I Above $425,000 $325,000 Lesso Pneome Tan Expense 25% (106, 250) (81,250) $243,750 Income from Dis continued $318,750 Operations Net Income $1,987,500 $787,500

3) Ans Given, ② Note or since there is Since there is Anticipated loss (Impalsment) will occurred. This will be shown in the Income statement in Dec 31, 2021 ish fair value of Divisions Assets $ 3,950.000 les : Book value of Divisions Assets 4,500,000 Anticipated Loss $550.000 winnitas motor Less Income Tane Expense @ 25% (1.32,500) 550,000 X 25 = $131,500 100 Toomas Lossito Anticipated loss shown in $412,500 the income statement Therefore this Anticipated lose $ 412,500 Amount with Negative Negative sign shown in the stadement

2021 2020 Jackson Holding Company for comparative Recome statement (in Part year Endled December 31 particular Imome from Continuing Operationg $2,225,000 $725,000 before Income Taxes (as pen working Pilotes shown in & 1) lesso Pencome Tax Esponse @ 25% (556,250)| (181,250) Income from continuing Operation $1,668,750 Dis.continuing, Operations Income (lous) from Operations $425,000 of discontinued Operations Lesso Pucome tax frepense@254 (106,250) (81,250) less. Anticipated low on Operation ü2,500 sale (Net off Tances) [sce Note ② Above] $ 543.750 $325,000 $(93,750 $243,750 Income from Discontinued Operations (loss) Net Pneome $1,575,000 $ 787, 500

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