Discontinued operations & unusual items-stapling limited

Reference no: EM13817375

Discontinued Operations & Unusual Items-Stapling Limited

In December 20X4, the Board of Directors of Stapling Limited approved a plan to curtail thedevelopment of the company's electronics products division. As a result, the companyrecognized an asset impairment loss before tax of $50,000,000. The electronics products divisionhad incurred pre-tax losses of $25,000,000 in 20X3 and $18,000,000 in 20X4.In addition, during 20X4, the company retired an issue of bonds early. The bonds had a carryingvalue of $100,000,000 and were retired at an amount of $80,000,000, resulting in a pre-tax gainof $20,000,000. The company had never had a transaction like this previously.The tax rate on all the above items is the company's average income tax rate of 35%.Assume that earnings from other sources, before income taxes, were $214,100,000 in 20X3 and$143,200,000 in 20X4. This does not include the bond retirement transaction.

Required:

1. Comment on whether treating the gain on the bond retirement as an unusual item isappropriate.2.

2. Prepare the income statements for 20X3 and 20X4, beginning with income fromcontinuing operations.

Reference no: EM13817375

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