Question

m) Each o esces On August 1, 2016, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by June 30, 2017. On January 31, 2017, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated: Operating loss Feb. 1, 2016-Jan. 31, 2017 Estimated operating losses, Feb. 1-June 30, 2017 Impairment of division assets at Jan. 31, 2017 $115,000 80,000 10,000 In its income statement for the year ended January 31, 2017, Rocket would report a before-tax loss on discontinued operations of A) S195,000. B) $125,000. C)$115,000. D) $65,000. 9) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2016. The following additional facts pertain to the transaction: The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations The book value of Footwear's assets totaled $48 million on the date of the sale. Footwear's operating income was a pre-tax loss of $10 million in 2016. Foxtrot's income tax rate is 40 %. Suppose that the Footwear Division's assets had not been sold by December 31, 2016. but were considered hcld for sale, Assume that the fair value of these assets at December 31 was $80 million. In the 2016 income statement for Foxtrot Co., under discontinued operations it would report a: A) $10 million loss. B) $13.2 million income. C) $6 million loss. D) None of the other answers is сorect. 10) Major Co. reported 2016 income of $300,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $80,000. All income is subject to a 30 % tax rate. In the 2016 income statement, Major Co. would show the following line-item amounts for income tax expense and net income: A) $90,000 and $276,000. C) $90,000 and $154,000 10) B) $66,000 and $210,000. D) $66,000 and $220,000. А-2

Answer 1

1) Solution: $125,000

Explanation: Before-tax loss on discontinued operations: [Operating loss Feb. 1, 2018–Jan. 31] +[Impairment of division assets at Jan. 31] = $115,000 + $10,000 = $125,000

　

2) Solution: 6 million loss

Explanation: $10 million(loss) * 60% = $6 million (loss)

Since there are no impairment of assets and only impairments are considered thus the assets would be still held for sale

　

3) Solution: 90,000 and 154,000

Working:

Income from continuing operations before income taxes	300,000
Income tax expense	90,000
Income from continuing operations	210,000
Loss on discontinued operations	-56,000
Net income	154,000