On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. • Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 $ 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income (378,750) (225.000) S 71,250 S 675,000 S (378,750) 75,000 x 371,250 x
On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp. reported income from continuing operations of $900,000 before tax for the year. a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations. Ignore earnings per share disclosures. • Use a negative sign to indicate a loss. Leigh Corp. Income Statement Year Ended December 31 Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Impairment loss on discontinued component, net of tax savings Net income Leigh Corp. Income Statement Year Ended December 31 $ 675,000 b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on December 31. • Use a negative sign to indicate a loss. Income from continuing operations Discontinued operations Loss from discontinued operations, net of tax savings Gain on discontinued component, net of tax Net income (378,750) (225.000) S 71,250 S 675,000 S (378,750) 75,000 x 371,250 x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On October 31, Leigh Corp. approved a formal plan to dispose of its Knit Products Division. On December 31, the Knit
Products Division was held for sale but had not been sold. The Knit Products Division (considered a separate business
component) reported a net loss from operations of $505,000 before tax for the year ended December 31. The Knit Products
Division has a book value and fair value (after selling expenses) of $3,600,000 and $3,300,000, respectively. Leigh Corp.
reported income from continuing operations of $900,000 before tax for the year.
a. Assuming an income tax rate of 25%, prepare an income statement beginning with Income from Continuing Operations.
Ignore earnings per share disclosures.
Use a negative sign to indicate a loss.
Leigh Corp.
Income Statement
Year Ended December 31
Income from continuing operations
Discontinued operations
Loss from discontinued operations, net of tax savings
Impairment loss on discontinued component, net of tax savings
Net income
Leigh Corp.
Income Statement
Year Ended December 31
S
Income from continuing operations
Discontinued operations
Loss from discontinued operations, net of tax savings
Gain on discontinued component, net of tax
Net income
675,000
b. Repeat the requirements of part a but now assume that the book value of the Knit Products Division is $3,200,000 on
December 31.
• Use a negative sign to indicate a loss.
(378,750)
(225,000)
$ 71,250
$ 675,000
(378,750)
75,000 x
$ 371,250 x
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