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 $780,000. The book value of the division’s assets was $1,370,000, resulting in a before-tax loss of $590,000 on the sale. The division incurred a before-tax operating loss from operations of $120,000 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 $730,000. 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 decimal places.)

Answer 1

Answer:

Explanation:

Income Statement

Chance Compnay

For the year ended Dec 31, 2021

Income from continuing operations 730,000

Discontinued operations:

Loss from operations of discontinued component (810,000)

Income tax benefit [810,000*25%] 202,500

Loss on discontinued operations (607,500)

Net income 122,500

Earnings per share:

Income from continuing operations

[730,000/100,000]         $7.3/share

Gain(loss) from discontinued operations [607,500/100,000] ($6.075/share)

Net income (loss) [122,500/100,000] $1.225/share

Sale value 780,000

Book value of the assets 1,370,000

Gain on sale -590,000

Loss from operations -120,000

Loss from operations of discontinued component -810,000