FA14 Problem: Discontinued Operations & Unusual Items - Stapling Limited

FA14 Problem: Discontinued Operations & Unusual Items

- Stapling Limited

In December 20X4, the Board of Directors of Stapling Limited approved a plan to curtail thedevelopment of the company's electronics products division. As a result, the companyrecognized an asset impairment loss before tax of $50,000,000. The electronics products divisionhad incurred pre-tax losses of $25,000,000 in 20X3 and $18,000,000 in 20X4.In addition, during 20X4, the company retired an issue of bonds early. The bonds had a carryingvalue of $100,000,000 and were retired at an amount of $80,000,000, resulting in a pre-tax gainof $20,000,000. The company had never had a transaction like this previously.The tax rate on all the above items is the company’s average income tax rate of 35%.Assume that earnings from other sources, before income taxes, were $214,100,000 in 20X3 and$143,200,000 in 20X4. This does not include the bond retirement transaction.

Required:

1.

Comment on whether treating the gain on the bond retirement as an unusual item isappropriate.2.

Prepare the income statements for 20X3 and 20X4, beginning with income fromcontinuing operations.