| Course | AC300 Intermediate Accounting I |
|---|---|
| Unit | Unit 4 |
| Paper type | Income statement preparation |
| Length | About 560 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC300 Unit 4
A Division Sold and a Roof Lost: A Unit 4 Income Statement That Puts Each Unusual Item Where It Belongs
[Student Name]
Purdue University Global
AC300: Intermediate Accounting I
Unit 4 Income Statement Preparation
[Instructor Name]
[Date]
Summit Ridge Fitness Clubs, Inc. and all figures are composite; the standards and textbook cited are real.
Income Statement, Year Ended December 31
Revenue
1. Membership dues: $18,400,000.
2. Personal training and other services: $2,600,000.
Total revenue: $21,000,000.
Operating expenses
1. Club staff wages and benefits: $8,900,000.
2. Rent: $4,200,000.
3. Depreciation of equipment and leasehold improvements: $1,650,000.
4. Utilities and maintenance: $1,800,000.
5. General and administrative: $1,450,000.
6. Marketing: $900,000.
Total operating expenses: $18,900,000.
Loss from hailstorm damage, uninsured portion: $640,000. Operating income: $1,460,000. Interest expense: $360,000. Pretax income from the clubs the company kept: $1,100,000. Income tax expense at 25 percent: $275,000. Income from continuing operations: $825,000.
Discontinued operations
1. Loss from operations of the physical therapy division, net of tax benefit of $55,000: $165,000.
2. Gain on sale of the physical therapy division, net of tax of $150,000: $450,000.
Income from discontinued operations: $285,000.
Net income: $1,110,000.
Earnings per share, 1,000,000 shares outstanding
1. Income from continuing operations: $0.83.
2. Income from discontinued operations: $0.29.
3. Net income: $1.11.
Why the Division Is Discontinued
A disposal is reported as a discontinued operation when it is a component of the entity and selling it marks a change of strategy large enough to alter the company's operations and results materially (Financial Accounting Standards Board, 2014). The physical therapy division had its own clinics, staff and records, so it was a component. Leaving clinical therapy to focus solely on fitness clubs is a strategic shift, and the division produced about 18 percent of the prior year's revenue. Its results for the year and the gain on sale are both reported net of tax, separately from continuing operations.
Why the Storm Is Not
The hailstorm was unusual and infrequent, but since extraordinary items were removed from U.S. GAAP, an event like this stays inside continuing operations, shown on its own line and explained in the notes, rather than below income from continuing operations.
Under the rules in force before 2015, a preparer could have argued for showing the storm below continuing operations; the FASB eliminated that classification (Financial Accounting Standards Board, 2015). It is reported pretax with the rest of continuing operations, and its tax effect is part of the $275,000 of income tax expense.
Tax Allocation
Each discontinued item carries its own tax at 25 percent: the $220,000 pretax operating loss becomes $165,000 after a $55,000 tax benefit, and the $600,000 pretax gain becomes $450,000 after $150,000 of tax. This intraperiod allocation keeps each section of the statement on an after-tax basis consistent with where it is reported (Kieso et al., 2019).
What a Reader Learns
Continuing operations earned $0.83 a share. Most of the year's remaining profit came from selling the division, which will not recur. A reader forecasting next year should start from the continuing figure and adjust for the storm loss, which is also unlikely to repeat. Adding back the $640,000 storm loss, less its tax effect of $160,000, suggests that the 14 clubs earned closer to $1.31 a share in an ordinary year, and that is the figure an analyst would test against next year's results.
References
Financial Accounting Standards Board. (2014). Presentation of financial statements (Topic 205) and property, plant, and equipment (Topic 360): Reporting discontinued operations and disclosures of disposals of components of an entity (Accounting Standards Update No. 2014-08). https://www.fasb.org
Financial Accounting Standards Board. (2015). Income statement, extraordinary and unusual items (Subtopic 225-20): Simplifying income statement presentation by eliminating the concept of extraordinary items (Accounting Standards Update No. 2015-01). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
Reading the AC 300 Unit 4 instructions
Unit 4 of AC300 covers the income statement and its irregular items, and the problem gives a year of results that includes at least one disposal and one unusual event. Prepare the statement in multiple-step form unless the prompt allows a single step. Decide first whether any disposal is a discontinued operation, applying the test of a component and a strategic shift. Report that section net of tax, splitting results of operations from any gain or loss on sale. Keep unusual or infrequent items in continuing operations, shown separately and pretax. Allocate tax within the period so each section carries its own. Present earnings per share for continuing operations, discontinued operations and net income. Explain each placement in a paragraph after the statement. A brief look at what a reader should forecast from the result is a useful finish. Cite the relevant updates in APA 7.
How the AC 300 Unit 4 example is put together
The sample presents the statement first, from membership dues of $18,400,000 through operating expenses of $18,900,000, the separate storm loss, interest and tax at 25 percent. Discontinued operations follow with both lines net of tax, then net income of $1,110,000 and three earnings per share figures. A section applies the 2014 update to the physical therapy division: it had its own clinics and records, it produced about 18 percent of prior revenue, and leaving clinical therapy is a strategic shift. The highlighted sentence explains why the hailstorm stays above continuing operations after the 2015 update removed extraordinary items. A tax allocation section shows the $55,000 benefit and $150,000 tax on the two discontinued lines. The last section adds back the storm loss net of tax to show the clubs earning about $1.31 a share in an ordinary year.
Where the points sit in the AC300 Unit 4 rubric
In this AC300 unit, the statement itself earns the largest share of the points: correct arithmetic, a proper multiple-step layout and the right totals at each level. Placement decisions come next. Reporting the disposal as discontinued operations is credited only if the paper shows the component and strategic shift tests were met. The unusual item is the most common place to lose points, since many students still put it below continuing operations. Intraperiod tax allocation is checked line by line. Earnings per share must appear for each section. Written explanations that cite the specific updates show the reasoning behind each choice. A reader-focused conclusion, comparing continuing results with the one-time items, demonstrates analysis beyond preparation. Purdue Global instructors also look at presentation, so align amounts and label each subtotal. References in APA 7 complete the work.
Common AC300 Unit 4 mistakes, and how to avoid them
Many students still report an unusual loss as an extraordinary item, a category the FASB removed in 2015. Others net the storm loss of tax on the face of the statement, which only discontinued operations receive. Disposals of a single location are labeled discontinued when they do not represent a strategic shift. The gain on sale is sometimes mixed into operating income. Students forget to split earnings per share or compute only the net figure. Tax is applied once to the total rather than allocated to each section, so the continuing figure is wrong. A statement with no written explanation leaves the grader guessing whether a placement was a choice or an accident. If your problem includes a restructuring, an impairment or a change in accounting principle, our accountants can place each item and explain the reasoning for your section.
Get an AC300 Unit 4 example written to your instructions
Unit 4 problems vary mostly in which unusual items they plant, which makes the complete fact list the key input, along with the instructions and rubric. Each item is placed where the standard puts it, tax allocated section by section, with the note and earnings per share lines included. A first custom sample is free and is back within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC300 Unit 4 questions, answered
Why is the storm loss not net of tax when the discontinued division is?
Because only discontinued operations are presented net of tax on the face of the statement. An unusual or infrequent item remains part of continuing operations and is shown before tax, with its tax effect folded into the provision for the year. Extraordinary items once received net-of-tax treatment too, but that category was eliminated, so a storm loss now sits with the other operating lines.
Does every sale of a business unit count as discontinued operations?
No. The disposal has to represent a strategic shift with a major effect on operations and financial results, such as leaving a line of business or a major geographic area. Selling one club out of forty would usually not qualify. The therapy division qualifies in this problem because the chain leaves health care entirely, a point the note makes explicit.
Can the statement be single-step instead of multiple-step?
Some AC300 problems allow it, and a single-step format still has to show continuing and discontinued operations separately along with the earnings per share lines. Most Unit 4 prompts ask for multiple-step because the intermediate subtotals, operating income and income before tax, show where unusual items sit. Whatever format the instructions name is used, with multiple-step as the default.
Where can I find a free AC300 Unit 4 sample paper?
This page has a complete AC300 Unit 4 income statement for a composite fitness club chain, with a discontinued division net of tax, an uninsured hailstorm loss inside continuing operations, earnings per share and APA 7 references.
What does the AC300 Unit 4 sample estimate for an ordinary year?
It adds back the $640,000 storm loss less its $160,000 tax effect, which suggests the 14 clubs would earn about $1.31 a share in a year with no hail and no division sale.