Final answer:
To prepare the income statement for Canton Corporation, start with income from continuing operations before income taxes. Deduct the gain on disposal of discontinued component and the loss from operations of the discontinued component. Calculate income tax expense based on the tax rate. Finally, calculate the net income by adding all components.
Step-by-step explanation:
To prepare the income statement for Canton Corporation, we will start with the income from continuing operations before income taxes and then deduct the gain on disposal of discontinued component and the loss from operations of the discontinued component. Since Canton Corporation is subject to a 25% tax rate, we will multiply the income from continuing operations before income taxes by 0.25 to calculate the income tax expense. The final adjusted income from continuing operations after taxes is calculated by subtracting the income tax expense from the income from continuing operations before income taxes. Here is the step-by-step calculation:
- Income from continuing operations before income taxes = $120,000
- Income tax expense = Income from continuing operations before income taxes * Tax rate = $120,000 * 0.25 = $30,000
- Adjusted income from continuing operations after taxes = Income from continuing operations before income taxes - Income tax expense = $120,000 - $30,000 = $90,000
- Gain on disposal of discontinued component = $28,000
- Loss from operations of discontinued component = -$60,000
- Income from continuing operations after taxes = Adjusted income from continuing operations after taxes + Gain on disposal of discontinued component + Loss from operations of discontinued component = $90,000 + $28,000 + (-$60,000) = $58,000