Question

Esquire Comic Book Company had income before tax of $1,250,000 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 $375,000. The division generated before-tax income from operations from the beginning of the year through disposal of $550,000. Neither the loss on disposal nor the operating income is included in the $1,250,000 before-tax income the company generated from its other divisions. 2. The company incurred restructuring costs of $80,000 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
Income Statement
For the Year Ended December 31, 2016
Income from continuing operations *		$702,000
Discontinued operations:
Income from operations of discontinued component	550000
Loss on disposal of a divison	-375000
	175,000
Income tax expense	-70,000
Income on discontinued operations		105,000
Net income		$807,000
Income before considering additional items		$1,250,000
Decrease in income due to restructuring costs		-80,000
Before-tax income from continuing operations		1,170,000
Income tax expense (40%)		-468,000
Income from continuing operations		$702,000