Question

Not yet answered Marked out of 10.00 P Fag question Ladrillo Enterprises, Inc., has two operating divisions, one manufactures farm machinery and the other manufactures office furniture. Both divisions are considered separate components as defined by SFAS No. 144. The management of Ladrillo Enterprises wants to focus on the manufacturing of farm machinery and accordingly adopted a formal plan to sell the office furniture division on September 20, 2014. The sale was completed on March 10, 2015. At December 31, 2014, the office furniture component was considered as held for sale. On December 31, 2014, the company's fiscal year-end, the book value of the assets of the office furniture division was $1,000,000. On that date, the fair value of the assets, less costs to sell, was $900,000. The before- tax operating loss of the division for the year was $130,000. The company's tax rate is 40%. The after-tax income from continuing operations for 2014 was $350,000 Prepare a partial income statement for 2014 beginning with income from continuing operations. Ignore EPS disclosures.

Answer 1

Partial Income Statement for the year ended Dec 2014

Income after tax from continuing operations = $ 350,000
(-) Loss after tax savings from discontinuing operations ($ 138,000)
Income for distributions $ 212,000

Computation of loss after tax savings from Discontinued operations

Loss from the division = $ 130,000
(+) Impairment loss (100000-900000) $ 100,000
Total loss before tax = $ 230,000
(-) Tax Savings (230000*40%) ($ 92,000)
Loss after tax savings    = $ 138,000