Exercise 4-7 Income statement presentation: discontinued operations; restructuri

Question

Exercise 4-7 Income statement presentation: discontinued operations; restructuring costs (L 04-1, 4-3, 4. 4] Esquire Comic Book Company had income before tax of $1.850,000 in 2018 before considering the following material tems: 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 $435,000. The division generated before-tax income from operations from the beginning of the year through disposal of $670.000. Neither the loss on disposal nor the operating income is included in the $1,850,000 before-tax income the company generated from its other divisions 2. The company incurred restructuring costs of $90.000 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. (Amounts to be deducted should be indicated witth a minus sign.) ESQUIRE COMIC BOOK COMPANY Partial Income Statement For the Year Ended December 31, 2018 Income from continuing operations Discontinued operations gain (loss)

Explanation / Answer

Esquire Comic Book Company Partial Income Statement For the year ended December 31, 2018 (a) Income from continuing operations $ 10,56,000 Discountinued operations Gain/ (loss) Income from operations of discontinued component $   2,35,000 Less: Income tax expense ($2,35,000 X 40%) $       94,000 (b) Income on discontinued operations $   1,41,000 (a) + (b) Net Income $ 11,97,000 Workings: Income from operations of discontinued component = $6,70,000 - $4,35,000 = $2,35,000 Computation of Income from continuing operations: Income before considering additional items $ 18,50,000 Less: Decrease in income due to restructuring costs $       90,000 Before tax income from Discountinued operations $ 17,60,000 Less: Income tax expense ($17,60,000 X 40%) $   7,04,000 Income from continuing operations $ 10,56,000

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