Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2018 and 2017: Sales Cost of goods sold Gross profit Operating expenses Operating income Gain on sale of division 2018 2017 $15,400,000 $10,000,000 9,400,000 6,200,000 6,000,000 3,800,000 3,360,000 2,760,000 2,640,000 1,040,000 640,000 3,280,000 1,040,000 1,312,000 416,000 $ 1,968,000 $ 624,000 Income tax expense Net income ices 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 $5,120,000. Book value of the division's assets was $4,480,000. The division's contribution to Jackson's operating income before-tax for each year was as follows: 2018 $420,000 2017 $320,000 Assume an income tax rate of 40%. 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, 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 $5,120,000. 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, 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 $3,940,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures Complete this question by entering your answers in the tabs below.

Answer 1

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Part 1

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2018	2017
Income from continuing operations before income taxes	2220000	720000
Income tax benefit (expense)	(888000)	(288000)
Income from continuing operations	1332000	432000
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	1060000	320000
Income tax benefit (expense)	(42400)	(128000)
Income (loss) on discontinued operations	963750	228750
Net income	2349600	624000

2220000*40% =888000

720000*40% = 288000

1060000*40% = 424000

320000*40% = 128000

	2018	2017
Income from continuing operations before income taxes:
Unadjusted	2640000	1040000
Less : Income from discontinued operations	420000	320000
Adjusted	2220000	720000

	2018	2017
Income from discontinued operations:
Income from operations	420000	320000
Gain on disposal	640000
Total	1060000	320000

Part 2

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2018	2017
Income from continuing operations before income taxes	2220000	720000
Income tax benefit (expense)	(888000)	(288000)
Income from continuing operations	1332000	432000
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	420000	320000
Income tax benefit (expense)	(168000)	(128000)
Income (loss) on discontinued operations	252000	228750
Net income	1584000	624000

420000*40% = 168000

Part 3

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2018	2017
Income from continuing operations before income taxes	2220000	720000
Income tax benefit (expense)	(888000)	(288000)
Income from continuing operations	1332000	432000
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	(120000)	320000
Income tax benefit (expense)	48000	(128000)
Income (loss) on discontinued operations	(72000)	228750
Net income	1260000	624000

420000-(4480000-3940000)= (120000)

120000*40% = 48000