Question

E 4-6 Discontinued operations • L04-4, L04-5 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 $600,000. The book value of the division's assets was $1,000,000, resulting in a before-tax loss of $400,000 on the sale. The division incurred a before-tax operating loss from operations of S120,000 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 $550,000. 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.

Answer 1

Answer- CHANCE COMPANY

Partial Income Statement

For the Year Ended December 31, 2021

Income from continuing operations (a)		$550,000
Discontinued operations:-
Loss from operations of discontinued component (Note)	$(520,000)
Income tax benefit ($520,000*25%)	$130,000
Loss on discontinued operations		-($390,000)
Net Income (a+b)		$160,000
Earnings per share:
Income from operations
($550,000/ 100,000 shares)		$5.50
Gain (Loss) from discontinued operations
($390,000/ 100,000 shares)		($3.90)
Net Income (Loss) ($160,000/ 100,000 shares)		$1.60

Note:-Determine the amount of loss from operations of discontinued operations as follows:-

Details	Amount
Sale value of the segment	$600,000
Book value of the assets of the segment	($1,000,000)
Gain on sale of segment	($400,000)
Loss from operations of the segment	($120,000)
Loss from operations of discontinued operations	($520,000)

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