Discontinued operations should be shown on the statement of retained earnings net of taxes. a. True...

Discontinued operations should be shown on the statement of retained earnings net of taxes. a. True b. False

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Expert Solution

Solution:-

Discontinued operations should be shown on the statement of retained earnings net of taxes:-

False

Explanation:-

There are multiple line items to report on an entity's financial statements when operations are discontinued. Although the business component is being disposed of, it could still generate a gain or loss in the current accounting period. Therefore, the total gain or loss from the discontinued operations is reported, followed by the relevant income taxes. This tax is often a future tax benefit because discontinued operations are often loss making. The gain or loss on discontinued operations is aggregated with the result of continuing operations to determine the company's total net income.

Adjustments to the financial statements relating to previously reported discontinued operations may occur by classifying the adjustments separately in the discontinued operations section. These adjustments may occur due to benefit plan obligations, contingent liabilities or contingent contract terms. If the buyer of a discontinued operation assumes the debt associated with the operation, any interest expense before the sale is allocated to discontinued operations. GAAP does not allow the allocation of general corporate overhead to discontinued operations.

ekkarill92 answered 1 year ago

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