Aug 17, 2017

How would the presentation of discontinued operations be different from your answer to requirement 1?

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Discontinued operations

The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2016 and 2015:

On October 15, 2016, 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, 2016, for $5,000,000. Book value of the division’s assets was $4,400,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:

2016                      $400,000 loss

2015                      $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. Ignore EPS disclosures.

2. Assume that by December 31, 2016, 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 $5,000,000. How would the presentation of discontinued operations be different from your answer to requirement 1?

3. Assume that by December 31, 2016, 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 $3,900,000. How would the presentation of discontinued operations be different from your answer to requirement 1?



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