Susan Inc. has been disappointed with the Willow Division's performance over the last few years and...

Susan Inc. has been disappointed with the Willow Division's performance over the last few years and has decided that it would be best to sell the division. As of December 31, 2019 the Willow divison is considered to be held for sale.

The division's loss from operations for 2019 was $1,960,000.

The division's book value and fair value less cost to sell on December 31 were $3,030,000 and $2,360,000, respectively. What should the company report as loss on discontinued operations (before tax) on its 2019 income statement?

$670,000 impairment loss included in continuing operations and a $1,960,000 loss from discontinued operations.
$2,630,000 loss.
$1,960,000 loss.
No loss would be reported.

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Expert Solution

The accounting rules suggest reviewing your company's fixed asset carrying values – an asset's total cost minus accumulated depreciation – for impairment, whenever there's a change in circumstances that may impact the asset's useful life, current market value or salvage value.

Discontinued operations are listed separately on the income statement because it's important that investors can clearly distinguish the profits and cash flows from continuing operations from those activities that have ceased. This distinction is especially useful when companies merge, as parsing out which assets are being divested or folded gives a clearer picture of how a company will make money in the future.

Impairment loss = $670000 (3030000-2360000)

The loss for discontinued operation = 1960000

So the answer is Option (A) $670,000 impairment loss included in continuing operations and a $1,960,000 loss from discontinued operations.

ekkarill92 answered 1 year ago

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