The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance...

Question:

The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance division. Both divisions are considered separate components of the entity. The finance division has been unprofitable, and on October 3, 2016, Ottoboni adopted a formal plan to sell the division. The sale was completed on March 19, 2017. At December 31, 2016, the division was considered held for sale. On December 31, 2016, the company?s fiscal year-end, the book value of the assets of the finance division was $2,100,000. On that date, the fair value of the assets, less cost to sell, was $1,900,000. The before-tax operating loss of the division for the year was $270,000. The company's effective tax rate is 40%. The after-tax income from continuing operations for 2016 is $600,000.

Required:

1. Prepare a partial income statement for 2016 beginning with income from continuing operations. Ignore EPS disclosures.

2. Repeat requirement 1 assuming that the estimated net sales price of the finance division's assets was $2,400,000, instead of $1,900,000.

Income Statement:

Income statement refers to the financial statement, which depicts the profit and loss of the business and helps the organization to know the expenses, revenue, etc. of the firm.

Answer and Explanation:

Partial Income Statement
Particulars Amount ($) Amount ($)
After-tax income from continuing operations 600,000
Discontinues operations gain/ loss:
Loss from operations of discontinued component, net tax (2,70,000 / 100 * 60) -162,000
Estimated loss on sale of discontinued operations, net tax (2000,000 / 100 * 60) -120,000 -282,000
Net Income after revaluation adjustment 318,000

Partial Income Statement
Particulars Amount ($) Amount ($)
After-tax income from continuing operations 600,000
Discountinued operations gain / loss:
Loss from operations of discontinued component, net tax(270,000 / 100 * 60) 162,000
Estimated gain on sale of discontinued operations, net tax (300,000 / 100 * 60) 180,000 18,000
Net income after revaluation adjustment 618,000


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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
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