Question

V. Presentation of the Income Statement (16 points) The Raybum Company had income from continuing operations before tax of $1,575,000 in 2014. Additional pre-tax transactions not included in the computation of the $1,575,000 are as follows: 1. In 2014, Rayburn decided to sell one of its manufacturing divisions, which qualifies as a discontinued operation for financial reporting purposes. On Nov. 1, 2014, the division assets were sold for $3,250,000. On the date of the sale, the division assets had a book value of $3,750,000. The discontinued division had a loss from operations from Jan. 1, 2014 through Nov. 1, 2014 of $200,000. 2. The sale of operational equipment resulted in a loss of $57,000. 3. Rayburn acquired 70% of the outstanding stock of Koch Co. and as such, consolidates Koch Co.'s financial results with its own. Koch Co. had net income of $300,000 in 2014 REQUIRED: Use all of the information above to prepare a 2014 income statement for the Rayburn Company beginning with income from continuing operations before tax. Assume an income tax rate of 40%. Provide full disclosure on the Income Statement, but ignore EPS disclosures. Income from Continuing Operations, pre-tax

Answer 1

Income Statement:
	Amount$
Income from Continuing Operations, pre-tax	1575000
Less:Income/Loss of continuing operations:
Loss on sale of operational equipment	-57000
Net Income from Continuing Operations, pre-tax	1518000
Less:Income/Loss of discontinued operations:
Loss on sale of assets of discontinued division	-500000	(3750000-3250000)
Operating loss of discontinued division	-200000
Income before taxes	761000
Less:Income tax @40%	304400
Net Income	456600
Note: Subsidiary's net income has not effect as it is entered in "investment in
subsidiary account".