Question

Esquire Comic Book Company had income before tax of $1,350,000 in 2021 before considering the following material items:

1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $375,000. The division generated before-tax income from operations from the beginning of the year through disposal of $570,000.
2. The company incurred restructuring costs of $90,000 during the year.

Required:
Prepare a 2016 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 40%. Ignore EPS disclosures.

Answer 1

Net income = $873,000

Step-by-step explanation:

The 2016 income statement for Esquire is seen below;

Esquire Comic Book Company

Income statement for the year ended, 2016

Income from continuing operations

Operating income

$1,350,000

Restructuring costs

($90,000)

Income from continuing operations

$1,260,000

Income(loss) from discontinued operation

Loss on disposal of discontinued operation

($375,000)

Add: Income from discontinued operation

$570,000

Net income(loss) from discontinued operation

$195,000

Income before tax = $1,260,000 + $195,000 = $1,455,000

Income tax expense = $1,455,000 × 40% = $582,000

Net income = $1,455,000 - $582,000 = $873,000