Question

Exercise 4.2 - Discontinued Operations with EPS The Bilibong Company had three distinct operating divisions, each of which qualifies as a separate component. The sports equipment division had been unprofitable, and on June 1, 2018, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 3, 2018, at a price of $1,200,000. The sale resulted in a before-tax gain of $300,000. The division incurred before-tax operating losses of $380,000 from the beginning of the year through December 3, The income tax rate is 40%. Bilibong's after-tax income from its continuing operations is $500,000. Required: Prepare an income statement for 2018 beginning with "income from continuing operations before tax." Include

Answer 1

   Bilibong Company

   Income Statement for the Year ended 31 Dec 2018

Notes Amount($)

1. Income from continuing Operations (Before Tax) 833333

2. Tax Expense

a.Current tax @40% 33333

b.Differed tax -

3.Income from continuing Operations (After Tax) (1-2)     500000

  

4.Income from disposed of Sports Equipment division (After Tax) A 180000

5. Profit(Loss) from Discontinuing Operations B       ( 380000)

6. Net Income (3+4-5) 300000

  

7.No of Shares of Common Stock Out standing 200000

8.Earning Per Share (EPS)    1.5

Working Notes;

A. Gain on disposed of Sports Equipment division 300000

LESS;Tax @ 40% 120000

  

Income from Disposal 180000   

We have to Pay Tax on Gain on disposal of Sports Equipment division .

B. For Operating Loss in Sports Equipment division ,we need not pay tax on loss.

So, we have to be deducted on  Income from Continuing Operations.

THANK YOU !