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 $700,000. The book value of the division’s assets was $1,210,000, resulting in a before-tax loss of $510,000 on the sale.

The division incurred a before-tax operating loss from operations of $180,000 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 $650,000.

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 decim

Answer 1

ANSWER:
Preparation of an income statement for 2021 beginning with income from continuing operations.

Chance Company
Income Statement
For the Year Ended December 31, 2021
	Amount in $		Amount in $
Income from continuing operations			650,000
Discontinued operations
Loss from operations of discontinued component [510000+180000]	-690,000
Income tax benefit [690,000*0.25]	172,500
Net Loss on discontinued operations			-517,500
Net income			132,500
Earnings per share:
Income from continuing operations 650,000/100000	6.50
Loss from discontinued operations -517,500/100000	-5.17
Net income 132,500/100000	1.33