Eeyore Corporation had two operating divisions, one manufacturing cooking utensi
ID: 2552041 • Letter: E
Question
Eeyore Corporation had two operating divisions, one manufacturing cooking utensils and the other herb garden kits. Both divisions qualified as separate components of the entity. On September 30, 2016, the company adopted a plan to sell the assets of the herb garden kits division. The herb garden kits division incurred before-tax operating loss for 2018 of $4.5 million. . Pretax income from continuing operations for the Eeyore Corporation for the year totaled S50 million. Eeyore Corporation has an average tax rate of 35%. Required: Consider independently the appropriate accounting by Eeyore Corporation under the following two scenarios. ScenarioL:Assumethat Eeyore Corporation sold the herb garden kit division's assets on December 28, 2018, for $32 million. The book value of the division's assets was $30 million at that date Prepare a partial income statement for 2018 beginning with income from continuing operations before income taxes. Include EPS disclosures. There were 10 million shares of common stock outstanding throughout 2018Explanation / Answer
Situation 1.
$
Income From Continuing operation
50 million
Less Provision for Taxation
(17.5 Million)
Income From Continuing Operation
32.5
Loss on Discontinuing Operation
(4.5 Million)
Gain on Disposal of Discontinuing Operation (Net of Tax )
1.3 Million
Net Income
29.3
Common Stock 10 Million
EPS
2.93
Situation 2
$
Income From Continuing operation
50 million
Less Provision for Taxation
(17.5 Million)
Income From Continuing Operation
32.5 Million
Loss on Discontinuing Operation
(4.5 Million)
Loss on impairment Discontinuing Operation
(1 Million)
Net Income
27 Million
$
Income From Continuing operation
50 million
Less Provision for Taxation
(17.5 Million)
Income From Continuing Operation
32.5
Loss on Discontinuing Operation
(4.5 Million)
Gain on Disposal of Discontinuing Operation (Net of Tax )
1.3 Million
Net Income
29.3
Common Stock 10 Million
EPS
2.93
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