Question

Hibou Ltd., a private company based in Vancouver, decided to sell its Industrial Design Division (IDD). After two years of losses and heavy competition, a plan to dispose of the division was put in place. At the end of 2020, the plan was finalized and approved by the board of directors. The sale is anticipated to be completed by June 30, 2021.

Other information:

1. Hibou's 2020 after-tax net income (excluding the results from the Industrial Design Division) was $450,000.

2. During the year, the division (IDD) reported an after-tax loss of $120,000 (revenues: $30,000, expenses: $150,000).

3. Management estimates that after-tax legal and audit fees of $32,000 as well as severance payments of $66,000 will be required to finalize the disposal plan. A portion of these costs is expected to be offset by the after-tax proceeds of $61,000 from the sale of the division's (IDD’s) assets.

Instructions (show all supporting calculations)

Assuming the Industrial Design Division (IDD) qualifies for treatment as a discontinued operation, prepare a partial income statement for Hibou for 2020. The statement should begin with income from continuing operations and include an appropriate footnote pertaining to the disposal of the Industrial Design Division.

Answer 1

Solution: