On October 28, 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $1,990,000. The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,630,000, respectively. What before-tax amount (s) should the company report as loss on discontinued operations in its 2021 income statement?

Question

Business

Kane Patrick

26 October, 18:26

On October 28, 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $1,990,000. The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,630,000, respectively. What before-tax amount (s) should the company report as loss on discontinued operations in its 2021 income statement?

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Janiya Lucas · Answer 1

The company report as loss on discontinued operations in its 2021 income statement is $1,990,000

Explanation:

The computation of the loss on discontinued operations is shown below:

= Division loss from operations

= $1,990,000

As no impairment loss is there because there is a gain as fair value is more than the book value.

For calculating the loss on discontinued operations, the gain should not be considered. So, only Division loss from operations is relevant and hence taken in the computation part

The gain would be

= $3,630,000 - $3,000,000

= $630,000