Question
In: Accounting
1. On September 17, 2021, Ziltech, Inc., entered into an agreement to sell one of its...
1. On September 17, 2021, Ziltech, Inc., entered into an
agreement to sell one of its divisions that qualifies as a
component of the entity according to generally accepted accounting
principles. By December 31, 2021, the company’s fiscal year-end,
the division had not yet been sold, but was considered held for
sale. The net fair value (fair value minus costs to sell) of the
division’s assets at the end of the year was $16 million. The
pretax income from operations of the division during 2021 was $4
million. Pretax income from continuing operations for the year
totaled $19 million. The income tax rate is 25%. Ziltech reported
net income for the year of $7.5 million.
Required:
Determine the book value of the division's assets on December 31,
2021. (Enter your answer in whole dollars not in
millions.)
2. On September 17, 2021, Ziltech, Inc., entered into an
agreement to sell one of its divisions that qualifies as a
component of the entity according to generally accepted accounting
principles. By December 31, 2021, the company’s fiscal year-end,
the division had not yet been sold, but was considered held for
sale. The net fair value (fair value minus costs to sell) of the
division’s assets at the end of the year was $11 million. The
pretax income from operations of the division during 2021 was $4
million. Pretax income from continuing operations for the year
totaled $14 million. The income tax rate is 25%. Ziltech reported
net income for the year of $7.2 million.
Required:
Determine the book value of the division's assets on December 31,
2021. (Enter your answer in whole dollars not in
millions.)
Solutions
Expert Solution
| 1 | ||
| Calculation of Book Value of Division's assets on December 2021 | ||
| Particulars | Amount | Notes |
| Tax Rate | 25% | |
| After tax income of Ziltech for the year of $7.5 million. | $ 75,00,000.00 | a |
| Tax paid during the year at 25% | $ 25,00,000.00 | b |
| [$7.5 million*25/(100-25)] | ||
| Therefore Pretax Income | $ 1,00,00,000.00 | c= a+b |
| Pretax income from operations of the division during 2021 | $ 40,00,000.00 | d |
| Pretax income from continuing operations for the year 2021 | $ 1,90,00,000.00 | e |
| Total Pre tax Income | $ 2,30,00,000.00 | f=d+e |
| Loss on Sale of the division recogonised | $ 1,30,00,000.00 | g= f-c |
| ( It is assumed that the same was claimed as a deduction in tax) | ||
| Net Fair Value of the division's asset | $ 1,60,00,000.00 | h |
| Loss on sale of asset = Fair Value of the divison's assets - Book Value of the division's assets | ||
| Therefore Book value of an asset = Loss on sale of assets + Fair Value of Asset | ||
| Hence, Book Value of Asset | $ 2,90,00,000.00 | g+h |
| 2 | ||
| Calculation of Book Value of Division's assets on December 2021 | ||
| Particulars | Amount | Notes |
| Tax Rate | 25% | |
| After tax income of Ziltech for the year of $7.5 million. | $ 72,00,000.00 | a |
| Tax paid during the year at 25% | $ 24,00,000.00 | b |
| [$7.5 million*25/(100-25)] | ||
| Therefore Pretax Income | $ 96,00,000.00 | c= a+b |
| Pretax income from operations of the division during 2021 | $ 40,00,000.00 | d |
| Pretax income from continuing operations for the year 2021 | $ 1,40,00,000.00 | e |
| Total Pre tax Income | $ 1,80,00,000.00 | f=d+e |
| Loss on Sale of the division recogonised | $ 84,00,000.00 | g= f-c |
| ( It is assumed that the same was claimed as a deduction in tax) | ||
| Net Fair Value of the division's asset | $ 1,10,00,000.00 | h |
| Loss on sale of asset = Fair Value of the divison's assets - Book Value of the division's assets | ||
| Therefore Book value of an asset = Loss on sale of assets + Fair Value of Asset | ||
| Hence, Book Value of Asset | $ 1,94,00,000.00 | g+h |
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