Preparing the Discontinued Operations Section of the Income

Preparing the Discontinued Operations Section of the Income Statement At its September 1, 2020, meeting, the board of directors of Jolie Inc. approved a plan for disposing of its candy vending division. The vending machine operation is a separate business component and had incurred a loss before tax of $150,000 for the eight-month period ending September 1, 2020. A tentative agreement has been reached with Macur Corporation to buy the vending division for $2 million, with delivery of all the assets and operations to Macur as of April 1, 2021. Jolie will continue operating the division until it is delivered to Macur. The book value of the vending machine operation is $2,100,000 on December 31, 2020. An operating loss of $30,000 before tax effects is experienced during the last four months of 2020. Assume an income tax rate of 25%.

a. Present the discontinued operations section of the 2020 income statement for Jolie Company. Assume that the after-tax income from continuing operations in 2020 is $500,000. Ignore the earnings per share disclosure.

b. Actual operations of the vending machine division for the first three months of 2021 result in an operating loss before taxes of $40,000, and the sale of the net assets of the division results in an actual pretax loss of $180,000. Present the discontinued operations section of comparative income statements for 2020 and 2021 for Jolie Company. Assume that after-tax income from continuing operations is $600,000 in 2021.

c. How would the answer change to part a if the book value of the vending machine operation were $1,900,000 on December 31, 2020, instead of $2,100,000?