Question

On December 31, 2021, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $9 million. The robotics business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $7 million. The income from operations of the segment during 2021 was $4 million. Pretax income from continuing operations for the year totaled $12 million. The income tax rate is 25%.

Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted and negative amounts should be indicated with a minus sign. Enter your answers in whole dollars and not in millions.)

Answer 1

The lower portion of the 2021 income statement for Revolutionary Industries reveals that after income taxes and the gain on the sale of their robotics segment, the net income is $10.5 million.

Step-by-step explanation:

Income Statement Preparation

Below is a portion of the 2021 income statement for Revolutionary Industries, starting from income from continuing operations before income taxes:

Income from Continuing Operations Before Income Taxes $12,000,000
Income Tax Expense (25% of $12 million) ($3,000,000)
Income from Continuing Operations $9,000,000
Gain on Sale of Robotics Business Segment (Operation segment disqualied per GAAP)
Sales Price $9,000,000
Less: Book Value of Assets ($7,000,000)
Gain on Sale of Segment $2,000,000
Income Tax Associated with Gain on Sale (25% of $2 million) ($500,000)
Net Gain on Sale of Robotics Segment $1,500,000
Net Income $10,500,000

The calculation shows that after accounting for the income tax expense related to continuing operations and the gain on the sale of the robotics segment, the net income for Revolutionary Industries is $10.5 million.