Question

USE THE FOLLOWING INFORMATION TO ANSWER:

On August 1, 2017, Rocket Retailers adopted a plan to discontinue its children’s clothing division, which qualifies as a component of the business according to GAAP.  The disposal of the division was expected to be concluded by June 30, 2018.  On December 31, 2017, Rocket’s fiscal year-end, the following information relative to the discontinued operation was accumulated:

Operating Income (pre-tax) Jan 1, 2017 - Dec 31, 2017	$            438,000
Estimated Operating Income (pre-tax) Jan 1, 2018 – June 30, 2018	180,000
Net Book Value of the Component	2,750,000
Fair Value of the Component	2,500,000
Estimated Disposal Costs	100,000
Income Tax Rate	21%

Part A

Because the sale was not complete by December 31, 2017, Rocket had to test the component for impairment.  Determine the Impairment Loss (net of tax), that Rocket would report in their 2017 footnotes (if any):                    $___________________

*If an impairment loss is indicated, just record your answer as a positive number. Do not use commas or dollar signs.

Using the information presented in PART A above, determine the following:

In its Income Statement for the year ended December 31, 2017, Rocket would report a total Gain/Loss on Discontinued Operations (net of tax) of:  $___________________

*Do not use dollar signs or commas when recording your answer.  If your answer is a Loss, record your answer using () parenthesis.

USE THE INFORMATION FROM PART A/B ABOVE, AND THE FOLLOWING INFORMATION, TO ANSWER THE NEXT (6) PARTS:

Rocket finalized the sale of the component on June 30, 2018 for cash proceeds of $2,600,000.  Actual operating income of the discontinued component from Jan 1 – Jun 30, 2018, was $120,000.  (This $120,000 is NOT included in the $1,500,000 Income Before Taxes listed below.)  Use this information and the Additional Data presented below to prepare a partial Income Statement for the year ended December 31, 2018 beginning with Income from Continuing Operations.  Include Earnings Per Share disclosures.

Additional Data:

     Income Before Taxes (’18)                                               $1,500,000

     Income Tax Rate (’18)                                                                    21%

     5% Preferred Stock ($100 Par, 10,000 shares issued)

     Common Stock ($1 par, 500,000 shares issued, 400,000 outstanding)

Partial Income Statement

Rocket Corporation

For the Year Ended December 31, 2018

Income from Continuing Operations                                           $    Blank 1

Gain/Loss from Discontinued Operations (net of tax)                 $    Blank 2

Net Income                                                                                 $    Blank 3

E.P.S.

Continuing Operations                   $    Blank 4

Discontinued Operations               $    Blank 5

Net Income                                    $    Blank 6

                  

C) Determine Income from Continuing Operations:                             $_____________________

Using the information presented above, answer the following:

D) Determine Gain/Loss from Discontinued Operations (net)  $_____________________

*If your answer is a Loss, enter your answer using () parenthesis.

Using the information presented above, answer the following:

E) Determine Net Income                                                                                $_____________________

*Do not use dollar signs or commas when recording your answer.

Using the information presented above, answer the following:

F) Determine EPS – Continuing Operations                                             $_____________________

*round your answer to the nearest full cent. Do not include dollar signs when recording your answer

Using the information presented above, determine the following:

G) Determine EPS – Discontinued Operations                                         $_____________________

*round your answer to the nearest full cent. Do not use a dollar sign when recording your answer.

Using the information presented above, determine the following:

H) Determine EPS – Net Income                                                                                      $_____________________

*round your answer to the nearest full cent. Do not use a dollar sign to record your answer.

Answer 1