For the year ending December 31, 2011, 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 2011, 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 of 2011, 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 of 2011. The operating income of the chain from January 1, 2011, through November was $160,000 and the loss on sale of the chain's assets was $300,000.
3. In 2011, 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 2009, Micron's accountant omitted the annual adjustment for patent amortization expense of $120,000. The error was not discovered until December 2011.
1. Prepare Micron's income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2011. 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.