11. The following condensed income statement of Scoop Corporation is presented f
ID: 2561544 • Letter: 1
Question
11. The following condensed income statement of Scoop Corporation is presented for the two years ended December 31, 2007 and 2006:
2007
2006
Net sales
$10,000,000
$9,000,000
Cost of sales
6,000,000
6,000,000
Gross profit
$ 4,000,000
$3,000,000
Operating expense
2,500,000
2,000,000
Operating income
$ 1,500,000
$1,000,000
Gain on sale of a component
800,000
-
$ 2,300,000
$1,000,000
Income Tax Expense
690,000
300,000
Net income
$ 1,610,000
$ 700,000
On January 1, 2007, Scoop entered into an agreement to sell for $2,000,000 one of its separate operating divisions. The sale resulted in a gain on disposition of $800,000 on November 12, 2007, and qualifies as a discontinued component. This division's contribution to Scoop's reported income before income taxes for each year was as follows:
2007 $600,000 loss
2006 $300,000 loss
Assume an income tax rate of 30%.
In the preparation of a revised comparative income statement, Scoop should report under the caption "Discontinued Operations" for 2007 and 2006, respectively
a.
income of $140,000 and a loss of $0
b.
income of $140,000 and a loss of $210,000
c.
income of $200,000 and a loss of $300,000
d.
a loss of $600,000 and a loss of $300,000
2007
2006
Net sales
$10,000,000
$9,000,000
Cost of sales
6,000,000
6,000,000
Gross profit
$ 4,000,000
$3,000,000
Operating expense
2,500,000
2,000,000
Operating income
$ 1,500,000
$1,000,000
Gain on sale of a component
800,000
-
$ 2,300,000
$1,000,000
Income Tax Expense
690,000
300,000
Net income
$ 1,610,000
$ 700,000
Explanation / Answer
Hence answer is income of $140,000 and a loss of $210,000
2007 2006 Loss from discontinued operations $(600,000.00) $ (300,000.00) Gain from discontinued operations $800,000.00 Income (loss) from operations of discontinued component $200,000.00 $ (300,000.00) Income tax benefit (expense)(30%) $(60,000.00) $ 90,000.00 Income (loss) on discontinued operations $140,000.00 $ (210,000.00)Related Questions
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