The following condensed income statements of the Jackson Holding Company are pre

Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2018 and 2017: 2018 2017 Sales Cost of goods sold Gross profit Operating expenses Operating income Gain on sale of division $16,800,000 $11,400,000 10,100,000 6,900,000 4,500,000 3,320,000 2,780,0001,180,000 6,700,000 3,920,000 780,000 1,424,000 3,560,000 1,180,000 472,000 $ 2,136,000 $ 708,000 Income tax expense Net income On October 15, 2018, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2018, for $5,540,000. Book value of the division's assets was $4,760,000. The division's contribution to Jackson's operating income before-tax for each year was as follows 2018 $490,000 2017 $390,000 Assume an income tax rate of 40%. Required: (In each case, net any gain or loss on sale of division with annual income or loss from the division and show the tax effect on a separate line) 1. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures 2. Assume that by December 31, 2018, the division had not yet been sold but was considered held for sale. The fair value of the division's assets on December 31 was $5,540,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures 3. Assume that by December 31, 2018, the division had not yet been sold but was considered held for sale. The fair value of the division's assets on December 31 was $4,080,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures

Explanation / Answer

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Jackson Holding Company Comparative Income statements For the years ended December 2018 2017 Operating Income 2780000 1180000 Add: Loss from discontinued operations 490000 390000 Income from continuing operations before income tax 3270000 1570000 Income Tax expense(40% of income from continuing operations before income tax) -1308000 -628000 Income from continuing operations 1962000 942000 Discontinued Operations: Loss from operations of discontinued operations -490000 -390000 Gain on sale of assets disposal 780000 Total gain on discontinued operations 290000 -390000 Income Tax Benefit(expense) (40% of total gain on discontinued operations) -116000 156000 Net loss on discontinued operations after tax 174000 -234000 Net Income 2136000 708000

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