The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2013 and 2012:
|
2013 |
2012 |
| Sales |
$ |
16,800,000 |
|
$ |
11,400,000 |
|
| Cost of goods sold |
|
10,100,000 |
|
|
6,900,000 |
|
|
|
|
|
|
|
|
| Gross profit |
|
6,700,000 |
|
|
4,500,000 |
|
| Operating expenses |
|
3,920,000 |
|
|
3,320,000 |
|
|
|
|
|
|
|
|
| Operating income |
|
2,780,000 |
|
|
1,180,000 |
|
| Gain on sale of division |
|
780,000 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
3,560,000 |
|
|
1,180,000 |
|
| Income tax expense |
|
1,424,000 |
|
|
472,000 |
|
|
|
|
|
|
|
|
| Net income |
$ |
2,136,000 |
|
$ |
708,000 |
|
|
|
|
|
|
|
|
|
|
On October 15, 2013, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2013, for $5,540,000. Book value of the division's assets was $4,760,000. The division's contribution to Jackson's operating income before-tax for each year was as follows:
|
| 2013 |
$490,000 |
loss |
| 2012 |
$390,000 |
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. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)
|
|
|
| 2. |
Assume that by December 31, 2013, 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 $5,540,000. How would the presentation of discontinued operations be different from your answer to part 1?
|
|
|
|
3.
|
Assume that by December 31, 2013, 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 $4,080,000. How would the presentation of discontinued operations be different from your answer to part 1?
|