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Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2018, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2018, at a price of $760,000. The book value of the division's assets was $1,330,000, resulting in a before-tax loss of $570,000 on the sale The division incurred a before-tax operating loss from operations of $180,000 from the beginning of the year through December 15. The income tax rate is 30%. Chance's after-tax income from its continuing operations is $550,000 Prepare an income statement for 2018 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year.
Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2018, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2018, at a price of $760,000. The book value of the division's assets was $1,330,000, resulting in a before-tax loss of $570,000 on the sale The division incurred a before-tax operating loss from operations of $180,000 from the beginning of the year through December 15. The income tax rate is 30%. Chance's after-tax income from its continuing operations is $550,000 Prepare an income statement for 2018 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year.
Final answer:ChanceCompany'sincome statement for 2018 shows an after-tax income from continuing operations of $550,000. The net loss from thedivisionsold off, after accounting for tax benefits, is $525,000, and the final net income is $25,000. The earnings per share for continuing operations is $5.50, for discontinued operations is -$5.25, and the total EPS is $0.25.Explanation:Income Statement PreparationTo prepare the income statement for Chance Company for the year 2018, starting with income fromcontinuing operations, we first note the after-tax income from continuing operations which is $550,000. Next, we account for the loss on the sale of the farm equipment division. The before-tax loss is $570,000 and before-tax operating loss is $180,000. The total pre-tax loss from the discontinued operation is $570,000(loss on sale) plus $180,000 (operating loss), which equals $750,000. Applying the tax rate of 30%, we get a tax benefit of $225,000 ($750,000 × 0.30). The net loss from the discontinued operations is therefore $750,000 - $225,000 which is $525,000.The next step is to compute the net income which includes both the income fromcontinuingoperations and the loss from discontinued operations: $550,000(continuing operations) - $525,000 (discontinued operations) = $25,000 (net income).Theearnings per share(EPS) can becalculatedby dividing the net income by the number of shares outstanding. Assuming there are 100,000 shares outstanding throughout the year, the EPS for continuing operations is $5.50 ($550,000 ÷ 100,000), the EPS for discontinued operations is -$5.25 ($525,000 loss ÷ 100,000), and the total EPS is $0.25 ($25,000 ÷ 100,000).Chance CompanyIncome StatementFor the Year Ended December 31, 2018Income from Continuing Operations: $550,000Loss from Discontinued Operations: $(525,000)Net Income: $25,000EPS from Continuing Operations: $5.50EPS from Discontinued Operations: -$5.25Total EPS: $0.25Learn more about Income Statement Preparation here:brainly.com/question/37902927#SPJ11...