Question

For the year ending December 31, 2018, Benson Corporation had income from continuing operations before taxes of $1,320,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material. In November 2018, Benson sold its Pancake Village restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May 2018. The income from operations of the chain from January 1, 2018, through November was $172,000 and the loss on sale of the chain’s assets was $324,000. In 2018, Benson sold one of its six factories for $1,440,000. At the time of the sale, the factory had a book value of $1,220,000. The factory was not considered a component of the entity. In 2016, Benson’s accountant omitted the annual adjustment for patent amortization expense of $132,000. The error was not discovered until December 2018. Required: Prepare Benson’s income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2018. Assume an income tax rate of 30%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

	BENSON CORPORATION Partial Income Statement For the Year Ended December 31, 2018 Income from continuing operations before income taxes Income tax expense Income from continuing operations 0 Discontinued operations: Loss from operations of discontinued component Income tax benefit Loss on discontinued operations 0 Net income $0

Answer 1

BENSON CORPORATION
Partial Income Statement
For the Year Ended December 31, 2018
Income from continuing operations before income taxes       [Refer Working note 1]		$1,540,000
Income tax expense    [$1,540,000 x 30%]		-$462,000
Income from continuing operations    [$1,540,000 - $462,000]		$1,078,000
Discontinued operations:
Loss from operations of discontinued component        [Refer Working note 2]	-$152,000
Income tax benefit        [$152,000 x 30%]	$45,600
Loss on discontinued operations		-$106,400
Net income		$971,600

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Working note 1 - Computation of adusted Income from continuing operations before income taxes
Unadjusted Income from continuing operations before income taxes	$1,320,000
Add: Gain from sale of factory    [$1,440,000 - $1,220,000]	$220,000
Adjusted Income from continuing operations before income taxes	$1,540,000

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Working note 2 - Computation of Income / (Loss) from operations of discontinued component
Income from Operations of discontinued component	$172,000
Less: Loss from disposal of discontinued component	-$324,000
Loss (net) from operations of discontinued component	-$152,000

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Note:

The error relating to the year 2016 would not affect the net income of the current year (2018). It will be adjusted against the retained earnings of the company.