Question

Trayer Corporation has income from continuing operations of $256,000 for the year ended December 31, 2017. It also has the following items (before considering income taxes).

1. An unrealized loss of $86,000 on available-for-sale securities

2. A gain of $32,000 on the discontinuance of a division (comprised of a $18,000 loss from operations and a $50,000 gain on disposal).

3. A correction of an error in last year’s financial statements that resulted in a $30,000 understatement of 2016 net income. Assume all items are subject to income taxes at a 25% tax rate.

Prepare an income statement, beginning with income from continuing operations. TRAYER CORPORATION Partial Statement of Comprehensive Income

Answer 1

TRAYER CORPORATION
Partial Statement of Comprehensive Income
For the Year Ended December 31, 2017
Income from continuing operation	$256,000
Discontinued operations
Loss from Operations of Discontinued Division                     [Refer working note 1]	($13,500)
Gain from Disposal of Discontinued Division                        [Refer working note 2]	$37,500
Net Income / (Loss)                                                                    [$256,000 - $13,500 + $37,500]	$280,000
Other Comprehensive Income
Unrealized Holding Loss on Available-for-Sale-Securities     [Refer working note 3]	($64,500)
Comprehensive Income / (Loss)                                                [$280,000 - $64,500]	$215,500

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Working note 1 - Computation of loss from operations of the discontinued division, net of tax
	Amount
Loss from Operations of Discontinued Division (Before tax)	$18,000
Less: Income tax savings   [$18,000 x 25%]	$4,500
Loss from Operations of Discontinued Division, net of tax	$13,500

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Working note 2 - Computation of gain from the disposal of discontinued division, net of tax
	Amount
Gain from Disposal of Discontinued Division (Before tax)	$50,000
Less: Income tax   [$50,000 x 25%]	$12,500
Gain from disposal of Discontinued Division, net of tax	$37,500

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Working note 3 - Computation of unrealized holding loss on available-for-sale-securities, net of tax
	Amount
Unrealized Holding Loss Available-for-Sale-Securities   (Before tax)	$86,000
Less: Income tax savings   [$86,000 x 25%]	$21,500
Unrealized Holding Loss Available-for-Sale-Securities, net of tax	$64,500

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Note:

1. Error in last year’s financial statements should not affect the current year's net income/(loss) or comprehensive income/(loss).

2. It should be on the balance sheet through the retained earnings.