ANNE LORENZ N.

BALA
BSA 321

ACTIVITY

Case 1 (6 items x 5 points)

Presented below are the condensed income statements of Maine Corporation for the years ended
December 31, 20x2, and 20x1.

20x2 20x1
Sales P2,500,000 P2,450,000
Cost of Goods Sold 1,675,000 1,650,000
Gross Profit 825,000 800,000
Operating Expenses 337,500 325,000
Operating income 487,500 475,000
Gain on sale of division 100,000 -
587,500 475,000
Income tax expense 176,250 142,500

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Net income P411,250 P332,500

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On October 10, 20x2, Maine entered into an agreement to sell the assets of one (1) of its geographical

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segments. The geographical segment comprises operations and cash flows that can be clearly

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distinguished, operationally and for financial reporting purposes, from the rest of the company. The

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segment was sold on December 31, 20x2, for P875,000. The book value of the segment’s assets was
P775,000. The segment’s contribution to Maine’s operating income before tax for each year was as
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follows:

20x2 P56,875 loss

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20x1 40,625 income

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REQUIRED: Determine the following:

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1. Income from continuing operations in 20x1 P 304,062.50

Sales P2,450,000
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Cost of Goods Sold 1,650,000

Gross Profit 800,000
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Operating Expenses 325,000

Operating income 475,000
Gain on sale of division 0
Operating Income 475,000
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INCOME FROM DISCONTINUED OPERATION, 20X1 (40,625)

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Income from continuing operations before tax 434,375

Taxes (P434,375 x 30%) (130,312.50)
Income From Continuing Operations in 20x1 P 304,062.50
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 2. Income from continuing operations in 20x2 P 451,062.50

Sales P2,500,000
Cost of Goods Sold 1,675,000
Gross Profit 825,000
Operating Expenses 337,500
Operating income 487,500
Gain on sale of division 100,000
Operating Income 587,500
Loss from discontinued operation,20x2 56,875
Income from continuing operations before tax 644,375
Income tax expense (194,312.50)
Income from continuing operations 20x2 P451,062.50

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3. Net income in 20x1 P 332,500

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Income from continuing operations 20x1
Add: After-tax income from discontinued operations (40,625 x 70%)
P 304,062.50
28,437.50
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Net Income, 20x1 P 332,500.00
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4. Net income in 20x2 P 481,250

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Income from continuing operations 20x2 P 451,062.50

Add: after tax income from discontinued operations:

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Gain on Sale of assets (100,000x 70%) P 70,000

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Less: Loss from discontinued operations 39,812.50 30,187.50

(56,875x70%)
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Net Income,20x2 P 481,250.00

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5. Assume that by December 31, 20x1, the segment had not yet been sold but was considered held
for sale. The fair value of the segment’s assets on December 31 was P875,000. The after-tax
income (loss) from discontinued operations for 20x2 should be:

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 Loss from discontinued operations P 56,875
Multiply by: After Tax Rate 70%
After tax from discontinued operations for 20x2 P 39,812.50

6. Assume that by December 31, 20x1, the segment had not yet been sold but was considered held
for sale. The fair value of the segment’s assets on December 31 was P625,000. The after-tax loss
from discontinued operations for 20x2 should be:

Loss from discontinued operations P 56,827.00

Add: impairment loss on held for sale asset 150,000.00
TOTAL 206,875.00
Multiplied by: after Tax rate 70%

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After Tax loss from discontinued operations for 20x2 P 144,812.50

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