Sovereign Enterprises,Inc

question 40

Essay

Sovereign Enterprises,Inc.,has two operating divisions,one manufactures machinery and the other is a trucking operation that has been used to ship finished product for the manufacturing operation.Both divisions are considered separate components as defined by SFAS No.144.The management of Sovereign Enterprises wants to focus on the manufacturing operation and accordingly adopted a formal plan to sell the trucking division on November 15,2014.The sale was completed on April 30,2015.At December 31,2014,the trucking component was considered as held for sale.
On December 31,2014,the company's fiscal year-end,the book value of the assets of the trucking division was $250,000.On that date,the fair value of the assets,less costs to sell,was $200,000.The before-tax operating loss of the division for the year was $140,000.The company's tax rate is 40%.The after-tax income from continuing operations for 2014 was $400,000.
Prepare a partial income statement for 2014 beginning with income from continuing operations.Ignore EPS disclosures.

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Definitions:

IFRS

The International Financial Reporting Standards (IFRS) provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

Asset Exchange Transaction

A transaction where one asset is given up in exchange for another asset, with both having a measurable fair value.

Acquired Assets

Assets obtained through purchase or merger by a company.

Double-Declining Balance

An accelerated method of depreciation that doubles the rate at which an asset's book value is reduced over time, reflecting quicker loss of value.