Pax Inc Earned $90,000 and $110,000 of Income from Continuing Operations

Essay

Pax Inc. earned $90,000 and $110,000 of income from continuing operations after taxes in Years 1 and 2, respectively. The tax rate is 40%. The firm decided to sell one of its business segments on November 1, Year 1. The expected disposal date is February 1, Year 2. The segment's income was a pre-tax loss of $20,000 (not included in income from continuing operations) for Year 1 through November 1, Year 1.
The segment lost an additional $25,000 pre-tax income for the remainder of Year 1 and was expected to lose $10,000 more pre-tax in Year 2 to the disposal date. The selling price of the segment is $100,000 and the book value of net assets is $60,000. During Year 2, the segment actually earned $10,000 pre-tax. For both years, prepare the bottom portion of the income statement including a section for discontinued operations for this firm.