Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020 Sales revenue Cost of goods sold Gross profit Operating expenses Operating income Gain on sale of division 2021 2020 $15, 100, eee $9,700, eee 9,25e,eee 6,05e,eee 5,850,000 3,658,888 3,240, eee 2,648,888 2,610,000 1,010,000 610, eee 3,220,000 1,010,000 805,000 252,500 $ 2,415,000 $ 757,500 Income tax expense Net income 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 $5.030,000. Book value of the division's assets was $4,420,000. The division's contribution to Jackson's operating income before-tax for each year was as follows: 2021 $405,000 2e2e $305, eee Assume an income tax rate of 25%,

Answer 1

Part 1

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2021	2020
Income from continuing operations before income taxes	2205000	705000
Income tax benefit (expense)	(551250)	(176250)
Income from continuing operations	1653750	528750
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	1015000	305000
Income tax benefit (expense)	(51250)	(76250)
Income (loss) on discontinued operations	963750	228750
Net income	2617500	757500

22055000*25% =551250

705000*25% = 176250

1015000*25% = 51250

305000*25% = 76250

	2021	2020
Income from continuing operations before income taxes:
Unadjusted	2610000	1010000
Less : Income from discontinued operations	405000	305000
Adjusted	2205000	705000

	2021	2020
Income from discontinued operations:
Income from operations	405000	305000
Gain on disposal	610000
Total	1015000	305000

Part 2

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2021	2020
Income from continuing operations before income taxes	2205000	705000
Income tax benefit (expense)	(551250)	(176250)
Income from continuing operations	1653750	528750
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	405000	305000
Income tax benefit (expense)	-101250	(76250)
Income (loss) on discontinued operations	303750	228750
Net income	1350000	757500

405000*25% = 87000

Part 3

JACKSON HOLDING COMPANY

Comparative Income Statements (in part)

For the Years Ended December 31

	2021	2020
Income from continuing operations before income taxes	2205000	705000
Income tax benefit (expense)	(551250)	(176250)
Income from continuing operations	1653750	528750
Discontinued operations gain (loss):
Income (loss) from operations of discontinued component	(105000)	305000
Income tax benefit (expense)	-26250	(76250)
Income (loss) on discontinued operations	(131250)	228750
Net income	1522500	757500

405000-(4420000-3910000)= (105000)

105000*25% = 26250