Question

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2011 and 2010:

2011 2010
Sales $ 16,000,000 $ 10,000,000
Cost of goods sold 9,600,000 6,000,000

Gross profit 6,400,000 4,000,000
Operating expenses 3,200,000 2,600,000

Operating income 3,200,000 1,400,000
Gain on sale of division 475,000 —

3,675,000 1,400,000
Income tax expense 1,470,000 560,000

Net income $ 2,205,000 $ 840,000


On October 15, 2011, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division comprises operations and cash flows that canbe clearly distinguished, operationally and for financial reporting purposes, from the rest of the company. The division was sold on December 31, 2011, for $5,000,000.Book value of the division’s assets was $4,525,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:

2011 $ 400,000 loss
2010 $ 300,000 loss

Assume an income tax rate of 40%.

Required:
(1)
Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. IgnoreEPS disclosures. (In the Discontinued operations section Income tax expense and Loss amounts should be indicated with a minus sign. Omit the "$" sign in yourresponse.)

JACKSON HOLDING COMPANY
Comparative Income Statements (in part)
For the Years Ended December 31
2011 2010
Income from continuing operations before income taxes $ $


Income from continuing operations

Discontinued operations:



Income (loss) on discontinued operations

$ $


(2)
Assume that by December 31, 2011, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was$5,125,000. How would the presentation of discontinued operations be different from your answer to part 1? (Omit the "$" sign in your response.)

The 2011 income from discontinued operations would include only the operating of $ . Since no is indicated ($ ? $ = $ anticipated ), none is included. The anticipatedon disposal is not recognized until it is realized, presumably in the following year.

(3)
Assume that by December 31, 2011, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was$4,025,000. How would the presentation of discontinued operations be different from your answer to part 1? (Omit the "$" sign in your response.)

The 2011 income from discontinued operations would include the operating of $ as well as an of $ ($ book value of assets less $ ).