The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020: 2021 Sales revenue $ 15,700,000 2020 $ 10,300,000 Cost of goods sold 9,550,000 6,350,000 Gross profit 6,150,000 3,950,000 Operating expenses 3,480,000 2,880,000 Operating income 2,670,000 1,070,000 Gain on sale of division 670,000 3,340,000 1,070,000 Income tax expense 835,000 267,500 Net income $ 2,505,000 $ 802,500 On October 15, 2021, 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, 2021, for $5,210,000. Book value of the division's assets was $4,540,000. The division's contribution to Jackson's operating income before-tax for each year was as follows: 2021 $435,000 2020 $335,000 Assume an income tax rate of 25%. 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, 2021, 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 $5,210,000. 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, 2021, 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 $3,970,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020: 2021 Sales revenue $ 15,700,000 2020 $ 10,300,000 Cost of goods sold 9,550,000 6,350,000 Gross profit 6,150,000 3,950,000 Operating expenses 3,480,000 2,880,000 Operating income 2,670,000 1,070,000 Gain on sale of division 670,000 3,340,000 1,070,000 Income tax expense 835,000 267,500 Net income $ 2,505,000 $ 802,500 On October 15, 2021, 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, 2021, for $5,210,000. Book value of the division's assets was $4,540,000. The division's contribution to Jackson's operating income before-tax for each year was as follows: 2021 $435,000 2020 $335,000 Assume an income tax rate of 25%. 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, 2021, 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 $5,210,000. 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, 2021, 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 $3,970,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The following condensed income statements of the Jackson Holding Company are presented for the two years ended
December 31, 2021 and 2020:
2021
Sales revenue
$ 15,700,000
2020
$ 10,300,000
Cost of goods sold
9,550,000
6,350,000
Gross profit
6,150,000
3,950,000
Operating expenses
3,480,000
2,880,000
Operating income
2,670,000
1,070,000
Gain on sale of division
670,000
3,340,000
1,070,000
Income tax expense
835,000
267,500
Net income
$ 2,505,000
$ 802,500
On October 15, 2021, 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, 2021, for $5,210,000.
Book value of the division's assets was $4,540,000. The division's contribution to Jackson's operating income before-tax
for each year was as follows:
2021 $435,000
2020 $335,000
Assume an income tax rate of 25%.
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, 2021, 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 $5,210,000. 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, 2021, 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 $3,970,000. Prepare revised income statements according to generally
accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS
disclosures.
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