Reference no: EM132460583
On August 1, 20x1, Rocket Retailers adopted a plan to discontinue its children's clothing division, which qualifies as a component of the business according to GAAP. The disposal of the division was expected to be concluded by June 30, 20x2. On December 31, 20x1, Rocket's fiscal year-end, the following information relative to the discontinued operation was accumulated:
Operating Income (pre-tax) Jan 1, 20x1 - Dec 31, 20x1 $ 438,000
Estimated Operating Income (pre-tax) Jan 1, 20x2 - June 30, 20x2 180,000
Net Book Value of the Component 2,750,000
Fair Value of the Component 2,500,000
Estimated Disposal Costs 100,000
Income Tax Rate 21%
Question a. Because the sale was not complete by December 31, 20x1, Rocket had to test the component for impairment. Determine the Impairment Loss (net of tax), that Rocket would report in their 20x1 footnotes (if any): $___________________
- If an impairment loss is indicated, just record your answer as a positive number. Do not use commas or dollar signs. Example: If you determine there is an Impairment Loss of 100,000 (pretax), enter your answer as 79000. Remember, your answer should be reported after tax of 21% has been deducted.
Question b. In its Income Statement for the year ended December 31, 20x1, Rocket would report a total Gain/Loss on Discontinued Operations (net of tax) of: $___________________
- Do not use dollar signs or commas when recording your answer. If your answer is a Loss, record your answer using () parenthesis. The "total" gain/loss should include both the Income/loss from the discontinued operation + the impairment loss (if any), and reported after tax.
- Rocket finalized the sale of the component on June 30, 20x2 for cash proceeds of $2,600,000. Actual operating income of the discontinued component from Jan 1 - Jun 30, 20x2, was $120,000. (This $120,000 is NOT included in the $1,500,000 Income Before Taxes listed below.) Use this information and the Additional Data presented below to create a partial Income Statement for the year ended December 31, 20x1 beginning with Income from Continuing Operations. Include Earnings Per Share disclosures.
Additional Data:
Income Before Taxes ('x2) $1,500,000
Income Tax Rate('x2) 21%
1. 5% Preferred Stock ($100 Par, 10,000 shares issued)
Common Stock ($1 par, 500,000 shares issued, 400,000 outstanding)
Partial Income Statement
Rocket Corporation
2. For the Year Ended December 31, 20x2
Income from Continuing Operations $ Blank 1
Total Gain/Loss from Discontinued Operations (net of tax) $ Blank 2
Net Income $ Blank 3
3. E.P.S.
Continuing Operations $ Blank 4
Discontinued Operations $ Blank 5
Net Income $ Blank 6
Question c. Determine Income from Continuing Operations: $_____________________
Question d. Determine the Total Gain/Loss from Discontinued Operations (net) $_____________________
- If your answer is a Loss, enter your answer using () parenthesis. Do not use $ signs or commas in recording your answer.
Question e. Determine Net Income $____________________
Using the information presented above, answer the following:
Question f. Determine EPS - Continuing Operations $_____________________
- round your answer to the nearest full cent. Do not include dollar signs when recording your answer. Example: if you determine EPS from Continuing Operations to be $1.8743, record your answer as 1.87.
Question g. Determine EPS - Discontinued Operations $_____________________
- round your answer to the nearest full cent. Do not use a dollar sign when recording your answer. If you determined there was a Loss on Discontinued Operations, enter your answer for EPS using () parenthesis.
Question h. Determine EPS - Net Income $_____________________
- round your answer to the nearest full cent. Do not use a dollar sign to record your answer.