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On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. • Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 $ 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income (378,750) (225.000) S 71,250 S 675,000 S (378,750) 75,000 x 371,250 x

On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. • Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 $ 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income (378,750) (225.000) S 71,250 S 675,000 S (378,750) 75,000 x 371,250 x

Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter6: Accounting Quality
Section: Chapter Questions
Problem 20PC
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On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 S Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. (378,750) (225,000) $ 71,250 $ 675,000 (378,750) 75,000 x $ 371,250 x
Transcribed Image Text:On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 S Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. (378,750) (225,000) $ 71,250 $ 675,000 (378,750) 75,000 x $ 371,250 x
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