Question:
For the year ending December 31, 2013, Micron Corporation had income from continuing operations
before taxes of $1,200,000 before considering the following transactions and events. All of the items
described below are before taxes and the amounts should be considered material.
1. During 2013, one of Micron’s factories was damaged in an earthquake. As a result, the firm recognized
a loss of $800,000. The event is considered unusual and infrequent.
2. In November 2013, Micron sold its Waffle House restaurant chain that qualified as a component of an
entity.
The company had adopted a plan to sell the chain in May 2013. The income from operations of the chain
from
January 1, 2013, through November was $160,000 and the loss on sale of the chain’s assets was
$300,000.
3. In 2013, Micron sold one of its six factories for $1,200,000. At the time of the sale, the factory had a
carrying value of $1,100,000. The factory was not considered a component of the entity.
4. In 2011, Micron’s accountant omitted the annual adjustment for patent amortization expense of
$120,000.
The error was not discovered until December 2013.
Required:
1. Prepare Micron’s income statement, beginning with income from continuing operations before taxes,
for the year ended December 31, 2013. Assume an income tax rate of 30%. Ignore EPS disclosures.
2. Briefly explain the motivation for segregating certain income statement events from income from
continuing operations.
Answer:
For the year ending December 31, 2013, Micron Corporation had income from continuing operations
before taxes of $1,200,000 before considering the following transactions and events. All of the items
described below are before taxes and the amounts should be considered material.
1. During 2013, one of Micron’s factories was damaged in an earthquake. As a result, the firm recognized
a loss of $800,000. The event is considered unusual and infrequent.
2. In November 2013, Micron sold its Waffle House restaurant chain that qualified as a component of an
entity.
The company had adopted a plan to sell the chain in May 2013. The income from operations of the chain
from
January 1, 2013, through November was $160,000 and the loss on sale of the chain’s assets was
$300,000.
3. In 2013, Micron sold one of its six factories for $1,200,000. At the time of the sale, the factory had a
carrying value of $1,100,000. The factory was not considered a component of the entity.
4. In 2011, Micron’s accountant omitted the annual adjustment for patent amortization expense of
$120,000.
The error was not discovered until December 2013.
Required:
1. Prepare Micron’s income statement, beginning with income from continuing operations before taxes,
for the year ended December 31, 2013. Assume an income tax rate of 30%. Ignore EPS disclosures.
2. Briefly explain the motivation for segregating certain income statement events from income from
continuing operations.
Answer:
