Question

Esquire Comic Book Company had income before tax of $1,550,000 in 2016 beforeconsidering 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 $405,000. The division generated before-tax income from operations from the beginning of the year through disposal of $610,000. Neither the loss on disposal nor the operating income is included in the $1,550,000 before-tax income the company generated from its other divisions.
2.	The company incurred restructuring costs of $60,000 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.)

Answer 1

Esquire Comic Book Company
Partial Income Statement
For the Year Ended December 31, 2016
Income from continuing operations before taxes ($1,550,000 - $60,000)		$1,490,000
Income tax expense ($1,490,000 x 40%)		$596,000
Income before discontinued operations		$894,000
Discontinued operations:
Income from operation of discontinued component (including net loss on disposal of $405,000) ($610,000 - $405,000)	$205,000
Income tax expense ($205,000 x 40%)	$82,000
Income on discontinued operations		$123,000
Net income		$1,017,000