describe some of the important trade offs sharon faces as she decides whether to com 621786
Management choices and earnings persistence
It is December 2012, and Sharon Sowers, the CEO of Mallory Services, has decided to sell the clerical division. She has received an offer for $105,000 but is undecided about whether she wishes to complete the sale in 2012 or 2013. She is currently evaluating the effects of the sale on 2012 reported net income. Income from continuing operations for 2012 is estimated to be $950,000 (excluding the activities of the clerical division), and information about the clerical division is provided as follows. The company”s tax rate is 35 percent.
|
Year Ended 2012 |
Dec-12 |
||
|
Revenues |
$35,000 |
Assets |
$93,000 |
|
Expenses |
23,000 |
Liabilities |
26,000 |
a. Prepare the 2012 income statement, beginning with net income from continuing operations, assuming that Sharon accepts the offer, and explain how a user might interpret the items on the income statement in terms of earnings persistence.
b. Prepare the 2012 income statement, beginning with net income from continuing operations, assuming that Sharon chooses not to sell the division in 2012, and explain how a user might interpret the items on the income statement in terms of earnings persistence.
c. Describe some of the important trade-offs Sharon faces as she decides whether to complete the sale in 2012 or 2013.