Income Statement Other Items
Practice as You Learn
Practice as You Learn
Income Statement Presentation:
|Income from Continuing Operations||$X,XXX|
|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|
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|
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
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 x Tax%)
(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|
|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|
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.