ACCT101
Practice 1: Discontinued Activities
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2011 and 2010:
Jackson Holding Company has two geographic segments. Segment 1 operates in the U.S. and Segment 2 operates in Japan. On October 15, 2011, Jackson entered into a tentative agreement to sell the assets of segment 2. The two segments’ operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. Segment 2 was sold on December 31, 2011, for $5,000,000. Book value of Segment 2's assets was $4,400,000. Segment 2's contribution to Jackson's operating income before-tax for each year was as follows:
2011 400,000 loss 2010 300,000 loss
Assume an income tax rate of 40%.
1.
Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
2.
Assume that by December 31, 2011, Segment 2 had not yet been sold but was considered held for sale. The fair value of the segment's assets on December 31 was $5,000,000. How would the presentation of discontinued operations be different from your answer to requirement 1? How would Jackson Holdings Company report the segment held for sale on its balance sheet as of December 31, 2011?
3.
Assume that by December 31, 2011, Segment 2 had not yet been sold but was considered held for sale. The fair value of the segment's assets on December 31 was $3,900,000. How would the presentation of discontinued operations be different from your answer to requirement 1? How would Jackson Holdings Company report the segment held for sale on its balance sheet as of December 31, 2011?
Requirement 1:
Income Statement
Jackson Holding Company
Fiscal year 2011
Income From continuing activities (after tax)
2600,000+400,000 = 3000,000*0.6=1800,000
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2011 and 2010:
Jackson Holding Company has two geographic segments. Segment 1 operates in the U.S. and Segment 2 operates in Japan. On October 15, 2011, Jackson entered into a tentative agreement to sell the assets of segment 2. The two segments’ operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. Segment 2 was sold on December 31, 2011, for $5,000,000. Book value of Segment 2's assets was $4,400,000. Segment 2's contribution to Jackson's operating income before-tax for each year was as follows:
2011 400,000 loss 2010 300,000 loss
Assume an income tax rate of 40%.
1.
Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
2.
Assume that by December 31, 2011, Segment 2 had not yet been sold but was considered held for sale. The fair value of the segment's assets on December 31 was $5,000,000. How would the presentation of discontinued operations be different from your answer to requirement 1? How would Jackson Holdings Company report the segment held for sale on its balance sheet as of December 31, 2011?
3.
Assume that by December 31, 2011, Segment 2 had not yet been sold but was considered held for sale. The fair value of the segment's assets on December 31 was $3,900,000. How would the presentation of discontinued operations be different from your answer to requirement 1? How would Jackson Holdings Company report the segment held for sale on its balance sheet as of December 31, 2011?
Requirement 1:
Income Statement
Jackson Holding Company
Fiscal year 2011
Income From continuing activities (after tax)
2600,000+400,000 = 3000,000*0.6=1800,000