**Sub-Subject:** Accounting **Topic:** Income Statement Presentation – Discontinued Operations (U.S. GAAP) --- **Restatement of the Problem:** California Microtech Corporation is preparing its partial income statement for the year ended December 31, 2024. The company has a business segment (semiconductor) held for sale at year-end, which qualifies as a **discontinued operation** under GAAP. The following information is provided: - **Estimated fair value (less costs to sell) of the segment’s assets:** $14,000,000 - **Book value of the segment’s assets at sale:** $15,000,000 - **Loss from operations of the segment in 2024:** $3,900,000 - **Pretax income from other continuing operations:** $5,800,000 - **Income tax rate:** 25% The task is to calculate and present the lower portion of the 2024 income statement, beginning with **income from continuing operations before income taxes**, clearly showing the effects of discontinued operations, and computing all subtotals and income tax effects. --- ### **Step 1: Compute Income from Continuing Operations Before Income Taxes** This amount is **provided**: \[ \text{Income from continuing operations before income taxes} = \$5,800,000 \] --- ### **Step 2: Compute Income Tax Expense for Continuing Operations** \[ \text{Income tax expense} = \text{Income from continuing operations before taxes} \times \text{Tax rate} \] \[ \text{Income tax expense} = \$5,800,000 \times 0.25 = \$1,450,000 \] --- ### **Step 3: Compute Income from Continuing Operations (After Tax)** \[ \text{Income from continuing operations} = \text{Income before taxes} - \text{Income tax expense} \] \[ \text{Income from continuing operations} = \$5,800,000 - \$1,450,000 = \$4,350,000 \] --- ### **Step 4: Compute Loss from Discontinued Operations** Discontinued operations report **two components**: #### **A. Loss from operations of discontinued segment (net of tax):** Given: - Loss from operations during 2024: \$3,900,000 Tax benefit: \[ \text{Tax benefit} = \$3,900,000 \times 0.25 = \$975,000 \] Net loss from operations: \[ \text{Net loss from operations} = \$3,900,000 - \$975,000 = \$2,925,000 \] #### **B. Loss on disposal (net of tax):** - Book value of assets: \$15,000,000 - Fair value less costs to sell: \$14,000,000 - **Loss on disposal before tax:** \[ \text{Loss on disposal before tax} = \$15,000,000 - \$14,000,000 = \$1,000,000 \] - Tax benefit: \[ \text{Tax benefit} = \$1,000,000 \times 0.25 = \$250,000 \] - Net loss on disposal: \[ \text{Net loss on disposal} = \$1,000,000 - \$250,000 = \$750,000 \] #### **C. Total Loss from Discontinued Operations (Net of Tax):** \[ \text{Total net loss from discontinued operations} = \$2,925,000 + \$750,000 = \$3,675,000 \] --- ### **Step 5: Prepare the Partial Income Statement** **CALIFORNIA MICROTECH CORPORATION** **Partial Income Statement** **For the Year Ended December 31, 2024** \[ \begin{array}{|l|r|} \hline \textbf{Income from continuing operations before income taxes} & \$5,800,000 \\ \text{Income tax expense} & (1,450,000) \\ \hline \textbf{Income from continuing operations} & \$4,350,000 \\ \hline \textbf{Discontinued operations:} & \\ \quad \text{Loss from operations of discontinued segment, net of tax} & (2,925,000) \\ \quad \text{Loss on disposal of segment, net of tax} & (750,000) \\ \hline \textbf{Total loss from discontinued operations} & (3,675,000) \\ \hline \textbf{Net income} & \$675,000 \\ \hline \end{array} \] --- ### **Step 6: Final Calculation of Net Income** \[ \text{Net income} = \text{Income from continuing operations} - \text{Total loss from discontinued operations} \] \[ \text{Net income} = \$4,350,000 - \$3,675,000 = \$675,000 \] --- ## **Final Answer:** \[ \boxed{ \begin{array}{|l|r|} \hline \textbf{Income from continuing operations before income taxes} & \$5,800,000 \\ \text{Income tax expense} & (1,450,000) \\ \hline \textbf{Income from continuing operations} & \$4,350,000 \\ \hline \textbf{Discontinued operations:} & \\ \quad \text{Loss from operations of discontinued segment, net of tax} & (2,925,000) \\ \quad \text{Loss on disposal of segment, net of tax} & (750,000) \\ \hline \textbf{Total loss from discontinued operations} & (3,675,000) \\ \hline \textbf{Net income} & \$675,000 \\ \hline \end{array} } \] All numbers are shown in whole dollars, as required. --- ### **Key Terms Highlighted:** - **Income from continuing operations before income taxes** - **Income tax expense** - **Income from continuing operations** - **Discontinued operations** - **Loss from operations of discontinued segment, net of tax** - **Loss on disposal of segment, net of tax** - **Net income** - **GAAP** - **Tax rate** --- This solution follows the requirements of U.S. GAAP for reporting discontinued operations on the income statement. All calculations are shown step by step and all terms are clearly explained.