Question

  

Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2021, at a price of $650,000. The book value of the division’s assets was $1,110,000, resulting in a before-tax loss of $460,000 on the sale.

The division incurred a before-tax operating loss from operations of $150,000 from the beginning of the year through December 15. The income tax rate is 25%. Chance’s after-tax income from its continuing operations is $600,000.

Required:
Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)
  

Answer 1

Answer:

C Incorporation Income Statement (Partial) For the Year Ended December 31 2021
Details	Amount ($)	Amount ($)
Net Income from Continuing Operations after tax		600000
Discountinued Operations
Loss from operations of discontinued operations	(150000)
Loss on sale of assets	(460000)
Total loss from discontinued operations	(610000)
Income Tax benefit	152500
Loss on Discontinued Operations		(457500)
Net Income		142500
Earnings per Share
Income from continuing operations		6
Lss on discontinuned operations		(4.58)
Net Income		1.42

Working Notes:
Compute the amount of income tax:
Income Tax Benefit on loss on Discontinued Operations = (Net loss on discontinued operations) x tax rate
=$610000 x 25%
=152500

EPS Income from operations:
Earnings per Share = (Net income from continuning operations / Number of common shares outstanding )
=$600000/100000 shares
=$6

EPS Loss on Discontinued Operations:
Earnings per share = (Net income from continuning operations / Number of common shares outstanding )
=457500/100000 shares
=4.58