Income Statement Other Items
Practice as You Learn
Practice as You Learn
Income Statement Presentation:
| Income from Continuing Operations | $X,XXX |
| Discontinued Operations: | |
| Income or Loss from Operations, net of tax of $XX | $X,XXX |
| Gain or Loss on Sale, net of tax $XX | $X,XXX |
| Loss on Impairment, net of tax of $XX | $XXX |
| Total Discontinued Operations | $XXX |
| Net Income | $X,XXX |
The $ amount reported on the statement = the gain or loss before tax x 1 less the tax rate
For example: Before tax of $100,000 at 40% tax rate = $60,000 net of tax
$100,000 x (1 – 0.40 = 0.60) = $60,000
Computed EPS for each component of income separately reported after Income from Continuing Operations.
Earnings Per Share for each beginning with Income from Continuing Operations:
| Income from Continuing Operations: | $0.XX |
| Discontinuing Operations (total) | $0.XX |
| Net Income | $0.XX |
Practice Problem: Prepare the Income Statement
The company reported income from continuing operations of $1,200,000 before considering the following items:
| 1) Expenses incurred this period from closing retail stores: | $500,000 |
| 2) Expenses expected to be incurred in future periods from closing retail stores – no set plan as of yet | $300,000 |
| 3) Income from an operating division that is held for sale: | $220,000 |
| 4) Gain expected from the sale of the division held for sale: | $700,000 |
| 5) Impairment loss on assets of the operating division that are held for sale: | $180,000 |
The company’s income tax rate is 40%.
Outstanding common shares averaged 100,000 during the year.
Prepare the income statement in proper format beginning with Income from
Continuing Operations.
Answer
1st Decide how each item is reported:
Part of continuing operations?
Part of discontinued operations?
2nd – Determine the tax amount and the net of tax amount for each reported item:
| Gross | Tax (Gross x Tax%) |
Net (Gross – Tax) |
|
| Restructuring – before tax | $500,000 | $200,000 | $300,000 |
| Income from D.O: | $220,000 | $ 88,000 | $132,000 |
| Impairment loss on D.O. | $180,000 | $ 72,000 | $108,000 |
3rd Determine the adjusted Income from Continuing Operations:
| Prior Income from continuing operations: | $1,200,000 this is after tax |
| Restructuring expense $500,000 gross amount is | $ (300,000) net of tax |
| Adjusted Income from Continuing Operations: | $ 900,000 |
4th: Write the format of the income statement and drop in the amounts:
| Income from Continuing Operations | $900,000 |
| Discontinued Operations: | |
| Income from Operations, net of tax of $88,000 | $132,000 |
| Loss on Impairment of assets held for sale, net of tax of $72,000 | $108,000) |
| Total Discontinued Operations (optional) | $ 24,000 |
| Net Income | $ 924,000 |
| Earnings Per Share: | |
| Income from Continuing Operations: | $9.00 |
| Discontinuing Operations (total) | $0.24 |
| Net Income | $9.24 |
Note: Earnings per share is computed by dividing each amount on the income statement for the category by the 100,000 average common shares outstanding.