Question

For the year ending December 31, 2021, Olivo Corporation had income from continuing operations before taxes of $1,330,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material.

1. In November 2021, Olivo sold its PizzaPasta restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May 2021. The income from operations of the chain from January 1, 2021, through November was $173,000 and the loss on sale of the chain’s assets was $326,000.
2. In 2021, Olivo sold one of its six factories for $1,460,000. At the time of the sale, the factory had a book value of $1,230,000. The factory was not considered a component of the entity.
3. In 2019, Olivo’s accountant omitted the annual adjustment for patent amortization expense of $133,000. The error was not discovered until December 2021.

Required:
Prepare Olivo’s income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2021. Assume an income tax rate of 25%. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Answer is not complete.

OLIVO CORPORATION
Partial Income Statement
For the Year Ended December 31, 2021
Income from continuing operations before income taxes
Income tax expenseselected answer correct		not attempted
not attempted		not attempted
Income from continuing operations
Discontinued operations:
Loss from operations of discontinued componentselected answer correct	not attempted
Income tax benefitselected answer correct	not attempted
Loss on discontinued operations		0
Net income

  

Answer 1

Answer:

OLIVIO CORPORATION
Partial Income Statement
For the Year Ended December 31, 2021
Income from continuing operations before income taxes*		1560000
Income tax expense (25% x $1560000)		-390000
Income from continuing operations		1170000
Discontinued operations:
Loss from operations of discontinued component**	-153000
Income tax benefit (25% x $153000)	38250
Loss on discontinued operations		-114750
Net income		1055250

*Income from continuing operations before income taxes = $1330000 + ($1460000 - $1230000) = $1330000 + $230000 = $1560000

**Loss from operations of discontinued component = $173000 - $326000 = $-153000

Note: The omission of the adjustment for patent amortization expense of 2019 will be adjusted to the retained earnings in 2021 and not to the income statement.