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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Results of Discontinued Operations On November 30, Fleiner Company announced its plans to discontinue the operations of Division P (a major component of the company) by selling the division. On December 31, Division P had not yet been sold and was classified as held for sale. On this date, Division P had assets with a book value of $920,000 and liabilities with a book value of $610,000. Fleiner estimates that the fair value of Division P on this date is $190,000. During the year, Division P earned revenues of 920,000 and incurred expenses of $980,000. Fleiner is subject to a 30% income tax rate.

Required:

Prepare the discontinued operations section of Fleiner’s income statement. Show supporting calculations.

To determine

Prepare the discontinued operations sections of F Company’s income statement.

Explanation

Prepare the discontinued operations sections of F Company’s income statement as follows:

ParticularsAmounts ($)Amounts ($)
Results from discontinued operations:  
Loss from operations of discontinued Division P  (3) $(42,000) 
Loss from write-down of held-for-sale Division P (4)(84,000) ($126,000)

Table (1)

Working note (1):

Compute the pretax loss from operations:

Pretax loss=RevenueExpenses=$920,000$980,000=$(60,000)

Working note (2):

Compute the income tax credit:

Income tax credit=Pretax loss×30100=$(60,000)×30100=$18,000

Working note (3):

Loss from

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