Thursday, 7 May 2015

Esquire Comic Book Company had income before tax of $1,000,000 in 2013 before considering the following material items:

Esquire Comic Book Company had income before tax of $1,000,000 in 2013 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 $350,000. The division generated before-tax income from operations from the beginning of the year through disposal of $500,000. Neither the loss on disposal nor the operating income is included in the $1,000,000 before-tax income the company generated from its other divisions.
   
2. The company incurred restructuring costs of $80,000 during the year.
 
save image

Explanation:
 Income from operations of discontinued component (including loss on disposal of $350,000) = 150,000
 
 Income from continuing operations:
       
 Income before considering additional items $ 1,000,000  
 Decrease in income due to restructuring costs   (80,000 )
 


      Before-tax income from continuing operations   920,000  
 Income tax expense (40%)   (368,000 )
 


      Income from continuing operations $ 552,000