Question

Results of Discontinued Operations

During December 2016, Smythe Company decides to sell Division F (a component of the company). On December 31, 2016, the company classifies Division F as held for sale. On that date, the book values of Division F's assets and liabilities are $950,000 and $600,000, respectively. Smythe expects to sell Division F in 2017 and estimates that the fair value of Division F is $250,000. During 2016, Division F earned revenues of $1,000,000 and incurred expenses of $1,300,000. Smythe is subject to a 30% income tax rate.

Required:

1. Compute the following for Division F of Smythe Company:

a) Pretax income or loss from discontinued operations	$
b) Income tax expense or credit for discontinued operations	$
c) After tax income or loss from discontinued operations	$
d) Pretax income or loss on write-down of Division F held-for-sale	$
e) Income tax expense or credit for write-down of Division F held-for-sale	$
f) After tax income or loss on write-down of Division F held-for-sale	$

2. Prepare the results from discontinued operations section of Smythe income statement for 2016.

Results from discontinued operations:
from operations of discontinued Division F	$
on write-down of held-for-sale Division F	$
Total	$

Answer 1

1.)		Amount in $
	a) Pretax income or Loss from discontinued operations (1,000,000 - 1,300,000 )	300,000	Loss
	b) Income tax expense or credit for discontinued operations @30% of 300,000	90,000	Credit
	c) After tax income or loss from discontinued operations ( 300,000 - 90,000 )	210,000	Loss
	d) Pretax income or loss on write-down of Division F held-for-sale ((950,000 - 600,000 ) - 250,000 )	100,000	Loss
	e) Income tax expense or credit for write-down of Division F held-for-sale @30% of 100,000	30,000	Credit
	f) After tax income or loss on write-down of Division F held-for-sale ( 100,000 - 30,000 )	70,000	Loss
2.)	Results from discontinued operations:	Amount in $
	Loss from operations of discontinued Division F	210,000
	Loss on write-down of held-for-sale Division F	70,000
	Total	280,000