
Discontinued operations
• LO4–4
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?

Want to see the full answer?
Check out a sample textbook solution
Chapter 4 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- Kindly help me with accounting questionsarrow_forwardDuo Corporation is evaluating a project with the following cash flows: Year 0 1 2 3 Cash Flow -$ 30,000 12,200 14,900 16,800 4 5 13,900 -10,400 The company uses an interest rate of 8 percent on all of its projects. a. Calculate the MIRR of the project using the discounting approach. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the MIRR of the project using the reinvestment approach. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c. Calculate the MIRR of the project using the combination approach. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Discounting approach MIRR b. Reinvestment approach MIRR c. Combination approach MIRR % % %arrow_forwardHello tutor please provide this question solution general accountingarrow_forward
- Need help with this question solution general accountingarrow_forwardConsider a four-year project with the following information: Initial fixed asset investment = $555,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $37; variable costs = $25; fixed costs = $230,000; quantity sold = 79,000 units; tax rate = 24 percent. How sensitive is OCF to changes in quantity sold?arrow_forwardLight emitting diodes (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.39 and lasts 1,000 hours. A 15-watt LED, which provides the same light, costs $3.10 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $.115. A kilowatt-hour is 1,000 watts for 1 hour. If you require a return of 11 percent and use a light fixture 500 hours per year, what is the equivalent annual cost of each light bulb? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning


