Income statement presentation; discontinued operations; restructuring costs
• LO4–1, LO4–3, LO4–4
Esquire Comic Book Company had income before tax of $1,000,000 in 2018 before considering the following material items:
1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $350,000. The division generated before-tax income from operations from the beginning of the year through disposal of $500,000. Neither the loss on disposal nor the operating income is included in the $1,000,000 before-tax income the company generated from its other divisions.
2. The company incurred restructuring costs of $80,000 during the year.
Required:
Prepare a 2018 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 40%. Ignore EPS disclosures.
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Chapter 4 Solutions
INTERMEDIATE ACCOUNTING
- I|- Chapter 4 Saved Help Save & Exit On October 28 , 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $1,870,000. The division's book value and fair value less cost to sell on December 31 were $3,150,000 and $2,480,000, respectively. What before-tax amount(s) should the company report as loss on discontinued operations in its 2021 income statement? Multiple Choice $1,870,000 los. $2,540,000 loss. No loss would be reported.arrow_forwardCurrent Attempt in Progress Sandhill Co. sold its licorice division resulting in a loss of $101000. Assuming a tax rate of 25%, the loss on this disposal will be reported on the income statement at what amount? $101000 $25250 $126250 $75750 O Oarrow_forwardExercise 4-6 (Algo) Discontinued operations [LO4-4, 4-5] Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $740,000. The book value of the division's assets was $1,290,000, resulting in a before-tax loss of $550,000 on the sale. The division incurred a before-tax operating loss from operations of $160,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance's after-tax income from its continuing operations is $690,000. Required: Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common…arrow_forward
- Problem 3- Discontinued Operations| 24 During fiscalyear 2020 the company sold one of theirkey divisions. The following information has been provided for this discontinued operation. Sold the Garage Door Division on October 31, 2020 $ 1,30,000 Gain from operations of discontinuedGarage Door divisionfromJanuaury 1, 2020 through October 31, 2020. $ 12,500,000 Gain from sale of the Garage Doordivision on Octaber 31, 2020. Note: The operating gain of $13 millionand gain fromthe sale of $12.5 million are both pre-tax amounts. The company CF.O. has detemined that a 30% tax rate should be applied. Required: Prepare the Discontinued Operations section for the income statement.arrow_forwardQuestion 3What is the proper solution for this problem? B. On August 1, 2021, the board of directors of LL Co. voted to approve the disposal of one of its B division.The sale is expected to occur in June of next year. The B division's revenue and expenses for the period from January 1 to July 31 amounted to P14,000,000 and P10,000,000, respectively. For the period from August 1 to December 31, B Division's revenue amounted to P5,000,000 while expenses totaled P4,500,000. The carrying amount of B Division's net assets on December 31, 2021 was P21,000,000 and the fair value less cost of disposal was P25,000,000. The sale contract requires the company to pay termination cost of affected employees in the amount of P1,200,000 to be paid on September 30, 2022. The income tax rate is 30%. Required:25 – 27. Determine the income (loss) net of tax from discontinued operation.arrow_forwardExercise 4-8 (Algo) Discontinued operations; disposal in subsequent year [LO4-4] Kandon Enterprises, Incorporated, has two operating divisions; one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components as defined by generally accepted accounting principles. The horse division has been unprofitable, and, on November 15, 2024, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2025. At December 31, 2024, the component was considered held for sale. Consider the following: On December 31, 2024, the company’s fiscal year-end, the book value of the assets of the horse division was $438,000. On that date, the fair value of the assets, less costs to sell, was $380,000. The before-tax loss from operations of the division for the year was $320,000. The after-tax income from continuing operations for 2024 was $580,000. The company’s effective tax rate is 25% . Required: Prepare a partial income…arrow_forward
- Exercise 4-6 (Algo) Discontinued operations [LO4-4, 4-5] Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $740,000. The book value of the division's assets was $1,290,000, resulting in a before-tax loss of $550,000 on the sale. The division incurred a before-tax operating loss from operations of $160,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance's after-tax income from its continuing operations is $690,000. Required: Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common…arrow_forward12. Arreaga Corp. has a tax rate of 40 percent and income before non-operating items of €262,000. It also has the following items (gross amounts). € 37,000 101,000 Unusual loss Discontinued operations loss Gain on disposal of equipment Change in accounting principle increasing prior year's income 8,000 53,000 What is the amount of income tax expense Arreaga would report on its income statement? а. €104,800 b. €93,200 c. €111,200 d. €74,000arrow_forward5. Dandy Candy Company sold its licorice division resulting in a loss of $80,000. Assuming a tax rate of 25%, the loss on this disposal will be reported on the income statement at what amount? a $100.000 b. $20,000 e 180,000 d. S0,000arrow_forward
- PW 20191007 AC 251 FINANCIAL MANAGEMENT 3. Last Year Ratter Robotics had $5 million in Operating income (EBIT). The company has net depreciation expense of $1 million and interest expense of S1million; its corporate tax rate was 40 percent. The company has $14million in current assets and $4 million in non-interest-bearing current liabilities; it has $15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10 percent. Assume Ratner only non-cash item was depreciation. a. What was the company's net income for the year? b. What was the company's net cash flow?arrow_forwardEXERCISE I 6 Red Inc. has experienced several poor earnings and has several assets on its books that are undervalued. It desires to revalue its assets and eliminate the deficit. At December 31,2020, the company owns the following identifiable assets: Cost Accumulated Book value Fair value Depreciation Inventory P IM P IM P 0.7M Land 5 M 5 M 6.5 M Buildings 7.5 M Р 3.5 М 4.0 M 5.0 M 1.5 M Machinery & Equipment 3.5 М 2 M 2.2 M The statement of financial position on December 31,2020, reported a deficit of P 2,000,000. REQUIRED: Journal entries to record the quasi-reorganization.arrow_forwardArreaga Corp. has a tax rate of 40 percent and income before non-operating items of €262,000. It also has the following items (gross amounts). Unusual loss € 37,000 Discontinued operations loss 101,000 Gain on disposal of equipment 8,000 Change in accounting principle increasing prior year's income 53,000 What is the amount of income tax expense Arreaga would report on its income statement? a. €104,800 b. €93,200 c. €111,200 d. €74,000arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
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