F1 M5 Income Statement: Discontinued Operations Flashcards
On Dec 2, Year 1, Flint Corp’s board of directors voted to discontinue operations of its frozen food division and sell the division’s assets on the open market as soon as possible. This decision represents a major strategic shift for Flint and will have a significant effect on operations and financial results. The division reported net operating losses of $20,000 in December and $30,000 in January. On Feb 26, Year 2, sale of the division’s assets resulted in a gain of $90,000. Assuming that the frozen food division qualifies as a component of the business and ignoring income taxes, what amount of gain/loss from discontinued operations should Flint recognize in its income statement for Year 2?
$60,000
Operating loss in Jan would offset the disposal
Once the decision has been made to dispose of a component of a business and that component meets the criteria to be classified as held for sale, the operating results of the component for the period reported on and any gain or loss from the disposal should be reported where?
Separately from continuing operations, net of tax, in discontinued operations
On Oct 1, Year 1, Wand. Inc committed itself to a formal plan to sell its Kam division's assets early in Year 2. The decision represents a major strategic shift and will have significant effect on its operations and financial results. On that date, Wand estimated that the fair value of the component's asset was $25,000 less than the carrying value. Wand also estimated that Kam would incur operating losses of $100,000 for Q4 of Y1 and $50,000 for Q1 of Y2. All estimates proved to be materially correct. Disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative Y1 and Y2 income statements?
Y1 Y2
A. $0 $175,000
B. $175,000 $0
C. $125,000 $50,000
D. $100,000 $75,000C
Employee relocation costs associated with the decision to dispose should/shouldn’t be included in the loss from discontinued operations.
Should
Additional pension costs associated with the decision to dispose should/shouldn’t be included in the loss from discontinued operations.
Should
On Dec 31, Y1, the Board of Directors of Maxy Manufacturing Inc committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. Maxy estimated that Alpha’s Y2 operating loss would be $500,000 and that the fair value of Alpha’s facilities was $300,000 less than their carrying amounts. The division was actually sold from $400,000 less than its carrying amount. Maxy’s effective ta rate is 30%. What amount should Maxy report as loss from discontinued operations?
A. $350,000
B. $500,000
C. $420,000
D. $600,000
$500,000 + the additional loss of $100,000 = $600,000 * 0.70 = $420,000
The earliest period that a component of an entity can be reported in discontinued operations is when it meets the ______ criteria.
Held for sale
Which of the following transactions qualify as a discontinued operation?
A. Disposal of part of a line of business
B. Planned and approved sale of a segment
C. Changes related to technological improvements
D. Phasing out of a production line
B
Dingo Dog Food is a component of Conglomeration Inc and has been losing $50,000 per month. On April 1, Year 1, Conglomeration's management committed to a plan for the immediate sale of Dingo and fully expected to find a buyer for the component by March of Y2. The book value of the component's assets is $800,000 while the fair market value of the assets is $650,000. Conglomeration sold Dingo on Feb 28, Y2 for $550,000. Conglomeration's loss from discontinued operations before consideration of taxes for the year ended Dec 31, Y1, would be: A. $600,000 B. $950,000 C. $750,000 D. $850,000
$50,000 * 12 = Annual loss $600,000
Book Value of $800,000
Less FMV of $650,000
Total $150,000
C. $750,000
A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is corrected regarding the old building, except:
A. It will be valued at historical cost
B. It will no longer be depreciated
C. It will be reclassified as an asset held for sale
D. It will be classified as a current asset
A
The old building being actively marketed for sale will be valued at the lower of its book value or net realizable value
