P 4-3 Discontinued operations LO5
The following condensed income statements of the Jackson Holding Company are presented for
the two years ended December 31, 2006 and 2005:
Cost of goods sold
Gain on sale of division
Income tax expense
On October 15, 2006, Jackson entered into a tentative agreement to sell the assets of one of its
divisions. The division comprises operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the company. The division
was sold on December 31, 2006, for $5,000,000. Book value of the division's assets was
$4,550,000. The division's contribution to Jackson's operating income before-tax for each year
was as follows:
Assume an income tax rate of 40%.
Prepare revised income statements according to generally accepted accounting principles
by entering the required information where indicated below. Begin with income from
continuing operations before income taxes. Ignore EPS disclosures.
Assume that by December 31, 2006, the division had not yet been sold but was
considered held for sale. The fair value of the division’s assets on December 31 was
$5,150,000. How would the presentation of discontinued operations be different from
your answer to requirement 1?