Question

Fast-n-Snack Inc. is a food processing company that operates divisions in three major lines of convenience products: soda pop, snack foods, and candy. On 21 September 2017, the board of directors voted to put the candy division up for sale. The candy division’s operating results had been declining for the past several years due to intense competition from large international players such as Nestlé and Cadbury.

The board hired the consulting firm Brown LLP to conduct a search for potential buyers. The consulting fee was initiated at the time of the board’s decision to sell. The negotiated fee of 5% is to be applied only to value of the assets sold.

By 31 December 2017, Brown had found a highly interested buyer for the candy division, and serious negotiations were underway. The buyer was a food conglomerate based in Taiwan; it offered $6.3 million cash.

On 12 February 2018, after further negotiations, the Fast-n-Snack’s board accepted an enhanced Taiwanese offer to buy the division for $6.5 million. Fast-n-Snack’s shareholders approved the sale on 5 March 2018. The transfer of ownership took place on 31 March 2018.

Fast-n-Snack’s income tax rate is 20%. Other information is as follows (before tax, in thousands of dollars):

	21September 2017		31 December 2017
	Book value	Fair value	Fair value
Candy division's net assets:
Current assets	$1070	$1000	$ 920
Property, plant, and equipment	6200	4700	4900
Current liabilities	(1250)	(1250)	(1250)
	$6020	$4450	$4570
Net earnings (loss) of the candy division, before tax:
1 January to 21 September 2017			870
22 September to 31 December 2017			630
1 January to 31 March 2018			(740)

1. Prepare whatever journal entries are appropriate at 21 September 2017, 31 December 2017, 12 February 2018, 5 March 2018, and 31 March 2018. Assume any recoverable amount relates to assets only – i.e no impairment of liabilities.

2. Assume that the after-tax earnings from continuing operations amounted to $4 million in 2017. Prepare the lower section of the earnings section of the 20X1 Statement of Comprehensive Income (in thousands of dollars).

Answer 1

Journal Entry
Date	Particulars	DR/CR	Amount
21-Sep-17	No entry to be passed as Fast-n-Snack’s board has only decide to sell of Candy division.	NA	NA
31-Dec-17	No entry to be passed as Fast-n-Snack’s has found a buyer at a price of $6.3 million cash.
12-Feb-18	No entry to be passed as Fast-n-Snack’s oard accepted an enhanced Taiwanese offer to buy the division for $6.5 million.
05-Mar-18	No entry to be passed as Fast-n-Snack’s shareholders approved the sale.
31-Mar-18	Entry made only when share transfer from books.
	Cash	Dr	6500
	Loss for the period 1 January to 31 March 2018	Dr	740
	Current liabilities	Dr	1,250
	Current assets	Cr	920
	Property, plant, and equipment	Cr	4,900
	Profit on Sale of Candy Division	Cr	2,670