Reference no: EM132725477

Question - For the year ending December 31, 2016, Mickey Mouse Corporation had income from continuing operations before taxes of $1,500,000 before considering the following transactions and events. All the items described below are before taxes and the amounts should be considered material and are not included in the continuing operations above.

1. In 2016, Mickey sold one of its six manufacturing assembly lines for $1,200,000. At the time of the sale, the assembly line equipment had a carrying value of $1,100,000.

2. In November of 2016, Mickey sold its House of Mouse restaurant chain that qualified as a separate line of business. The company had adopted a plan to sell the chain in May of 2016. The operating income of the chain from January 1, 2016, through May 2016 was $250,000. The operating income from May until November, 2016 was $50,000 and the loss on sale of the chain's net assets was $200,000.

Required -

1. Prepare Mickey's income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2016. Assume an income tax rate of 40 percent. Ignore EPS disclosures.

2. Briefly explain the motivation for segregating certain income statement events from income from continuing operations.