ABC corp. had two operating divisions, one manufacturing pans and the other firs
ID: 2550788 • Letter: A
Question
ABC corp. had two operating divisions, one manufacturing pans and the other first aid kits. Both divisions qualified as separate components of the entity. On September 30, 2016, the company adopted a plan to sell the assets of the first aid kits division. The first aid kits division incurred before-tax operating loss for 2018 of $3.5 million.
Pretax income from continuing operations for the ABC Corporation for the year totaled $40 million. ABC Corporation has an average tax rate of 35%.
Assume that ABC Corporation sold the first aid kits division's assets on December 28, 2018, for $33 million. The book value of the division's assets was $30 million at that date.
Prepare a partial income statement for 2018 beginning with income from continuing operations before income taxes. Include EPS disclosures. There were 10 million shares of common stock outstanding throughout 2018.
Explanation / Answer
ABC Corp Partial income statement In miilions $ Income from continuing operations before income taxes 40 Income tax expense (40*35%) 14 Income from continuing operations 26 Loss on discontinued operations (net of tax) (3.5*0.65) -2.275 Net income 23.725 in $ Earnings per share: Income from continuing operations (26/10) 2.6 Loss on discontinued operations (-2.275/10) -0.2275 Net income (23.725/10) 2.3725