The following condensed income statements of the Jackson Holding Company are presented for the two yearsended December 31, 2018 and 2017:2018 2017Sales $15,000,000 $9,600,000Cost of goods sold 9,200,000 6,000,000Gross profit 5,800,000 3,600,000Operating expenses 3,200,000 2,600,000Operating income 2,600,000 1,000,000Gain on sale of division 600,000 —3,200,000 1,000,000Income tax expense 1,280,000 400,000Net income $ 1,920,000 $ 600,000On 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 $5,000,000. Book value of the division’s assets was $4,400,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:2018 $400,0002017 $300,000Assume an income tax rate of 40 percent.Required:1. Prepare revised income statements according to generally accepted accounting principles, beginning withincome 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. Thefair value of the division’s assets on December 31 was $5,000,000. What would be the amount presented fordiscontinued operations?3. Assume that by December 31, 2018, the division had not yet been sold but was considered held for sale. Thefair value of the division’s assets on December 31 was $3,900,000. What would be the amount presented fordiscontinued operations?
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 $15,000,000 $9,600,000
Cost of goods sold 9,200,000 6,000,000
Gross profit 5,800,000 3,600,000
Operating expenses 3,200,000 2,600,000
Operating income 2,600,000 1,000,000
Gain on sale of division 600,000 —
3,200,000 1,000,000
Income tax expense 1,280,000 400,000
Net income $ 1,920,000 $ 600,000
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 $5,000,000. Book value of the division’s assets was $4,400,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:
2018 $400,000
2017 $300,000
Assume an income tax rate of 40 percent.
Required:
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 $5,000,000. What would be the amount presented for
discontinued operations?
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 $3,900,000. What would be the amount presented for
discontinued operations?
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