Question

Esquire Comic Book Company had income before tax of $1,700,000 in 2016 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 $420,000. The division generated before-tax income from operations from the beginning of the year through disposal of $640,000. Neither the loss on disposal nor the operating income is included in the $1,700,000 before-tax income the company generated from its other divisions.
2. The company incurred restructuring costs of $75,000 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. (Amounts to be deducted should be indicated with a minus sign.)
ESQUIRE COMIC BOOK COMPANY
Partial Income Statement
For the Year Ended December 31, 2016
Income from continuing operations $ 552,000
Discontinued operations gain (loss)
Loss from operations of discontinued component (552,000)
Loss from operations of discontinued component (300,000)
Income tax expense 210,000
Income on discontinued operations (642,000)
Net loss $ 642,000)

Answer 1

Esquire Comic Book Company

Income Statement

For the Year Ended December 31, 2016

Income from continuing operations $1,700,000

Restructuring costs ($75,000)

Income form continuing operations before taxes $1,625,000

Income taxes ($650,000)

Net income from continuing operations $975,000

Discontinued operations:

Income from discontinued operations $640,000

Loss on disposal of division ($420,000)

Income from discontinued operations before taxes $220,000

Income taxes ($88,000)

Net income from discontinued operations $132,000

Total net income $1,107,000