Question

The company decided to discontinue an operating division during 2018 and sold the assets on December 15, 2018. Loss from operations of the division were $500,000 for the year through 12/15/2018. The assets were sold for $800,000 and had a net book value of $1,000,000. The effective income tax rate if 40%. Income from continuing operations after taxes was $2,000,000. Calculate net income and prepare the income statement starting with income from continuing operations.

Answer 1

Answer: Please refer to the explanation section

Step-by-step explanation:

Loss from operations = $500 000

Loss (sale of assets) = $1000 000 - $800 000 = $200 000

Income from continuing operations after tax = $2000 000, Therefore income from continuing operations before tax is equal to $200 000 x 100/60 = 3 333 333.333

Net Income before tax = 3 333 333.333 - 500 000 - 200 000

Net Income before tax == 2633 333.333

Net Income After Tax = 2633 333.333 x 60/100 = $1580 000

Income Statement

Income from continuing operations 3 333 333.333

Loss from operations - 500 000

Loss from sale of assets - 200 000

Net Income before Tax 2633 333.333

Taxation -1053 333.333

Net Income 1580 000