Question

On November 1, 2016, Woods Company announced its plans to sell its subsidiary, Williams Division (a major strategic component of the company). By December 31, 2016, Woods had not sold Williams Division and so it classifies the division as held for sale.

During 2016, Woods recorded the following revenues and expenses for Williams Division and the remainder of the company:

	Williams Division	Remainder of Company
Sales revenue	$170,000	$950,000
Cost of goods sold	119,000	560,000
Operating expenses	42,000	190,000

Woods is subject to a 30% income tax rate.

On December 31, 2016, the net book value of Williams Division is $500,000, consisting of assets of $910,000 and liabilities of $410,000. On this date, Woods estimates that the fair value of Williams Division is $420,000. The company had 50,000 shares of common stock outstanding during all of 2016.

	Required:
1.	Prepare the journal entry on December 31, 2016, to record the pretax loss on held-for-sale Williams Division. Show supporting calculations.
2.	Prepare a 2016 multiple-step income statement for Woods.
3.	Show how Williams Division would be reported on Woods’s December 31, 2016, balance sheet.

Chart of Accounts

CHART OF ACCOUNTS
Woods Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 191 Assets of Held-for-Sale Williams Division LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable 292 Liabilities of Held-for-Sale Williams Division EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 701 Loss from Write-Down of Held-for-Sale Williams Division 910 Income Tax Expense

Labels
Current Assets
Current Liabilities
Other Assets
Other Liabilities
Results from discontinued operations

Amount Descriptions
Gross profit
Income from continuing operations
Income from operations of discontinued Williams Division
Income from write-down of held-for-sale Williams Division
Loss from continuing operations
Loss from operations of discontinued Williams Division
Net income
Net loss
Operating expenses
Pretax income from continuing operations
Results from discontinued operations

Answer 1

NET BOOK VALUE		500000
LESS FAIR VALUE		420000
PRE TAX LOSS ON HELD FOR SALE WILLIION SONS DIVISION		80000

1.	Prepare the journal entry on December 31, 2016, to record the pretax loss on held-for-sale Williams Division. Show supporting calculations.

31-12-2016	PRE TAX LOSS ON SALE OF WILLSIOMS DIVISION	80000
	TO THE ASSETS OF THE WILLIAMS DIVISION		80000

2

Prepare a 2016 multiple-step income statement for Woods.

MULTIPLE STEP INCOME STATEMENT OF WOODS FOR THE YEAR ENDED DEC31 2016
sales			950000
less COGS			560000
gross profit			390000
less operating expenses			-190000
operating income before taxes			200000
less income tax @30%			60000
income from continuing operations			140000
income from operations of WilliamS division	6300
loss on the sale of division	-56000
income from discontinuing operations			-49700
net income			90300

income from continuing operation			140000/50000 shares	2.8
income from discontinuing operations			49700/50000 shares	-0.994
net earnings per share				1.806
				1.81 approx(rounded)

income from continuing operations
sales	170000
cogs	119000
gross profit	51000
operating expenses	42000
operating income before taxes	9000
less tax @ 30%	2700
income from continuing operations of William division	6300

loss on sale of division after tax
pre tax loss	80000
less tax @30%	24000
	56000

3.	Show how Williams Division would be reported on Woods’s December 31, 2016, balance sheet.

partial balance sheet as on dec 31 2016
current assets
assets of held for sale Williams division	910000-80000	830000
total assets		830000
current liabilities
liabilities of held for sale William division	410000-80000	390000
total liabilities		390000

HOPE THIS WAS HELPFUL. DO CONSIDER GIVING THIS A THUMBS UP.