The partial statement of comprehensive income for Quesley Inc. (Quesley), a publicly accountable entity, for the year
Question:
The partial statement of comprehensive income for Quesley Inc. (Quesley), a publicly accountable entity, for the year ended June 30, 2021, is as follows:
Revenue $7,800,000
Cost of goods sold 4,500,000
Gross margin 3,300,000
Operating expenses 2,750,000
Operating income 550,000
Income taxes (30%) 165,000
Net income (loss) $ 385,000
During April 2021, the board of directors of Quesley approved the sale of Echo, one of Quesley’s divisions and major lines of business. Operations at Echo ceased on June 1, 2021, at which point the assets of Echo qualified as held for sale, and Echo was put on the market for sale at a price of $8,500,000. It was expected that a buyer would be found to purchase Echo within the next 12 months.
For the fiscal year from July 1, 2020, to June 30, 2021, Echo had revenues of $4,000,000, a gross margin of $1,000,000, and operating expenses of $900,000. These amounts are included in the partial statement of comprehensive income above.
The carrying value of the net assets of Echo was $9,200,000, and the fair market value of the net assets was estimated to be $8,700,000. Costs to sell Echo were estimated to be equal to 8% of the fair value of Echo’s net assets. These amounts are NOT included in the partial statement of comprehensive income above.
Required:
a) Determine the amount of net income or loss from discontinued operations for the year ended June 30, 2021.
b) Determine the amount of income or loss from continuing operations for the year ended June 30, 2021.
