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

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.

Expert Solution

Pretax income from continuing operations $14,000,000

Income tax expense (3,500,000)

Income from continuing operations 10,500,000

Less: Net income 7,200,000

Loss from discontinued operations $ 3,300,000

$3,300,000 ÷ 75%* = $4,400,000 = Pretax loss from discontinued

operations.

*1 – tax rate of 25% = 75%

Pretax income of division $4,000,000

Add: Pretax loss from discontinued operations 4,400,000

Impairment loss $8,400,000

Fair value of division’s assets $11,000,000

Add: Impairment loss 8,400,000

Book value of division’s assets $19,400,000

Raffay answered 2 years ago

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...

Generally Accepted Accounting Principles (GAAP) are created by: (Select all that apply) Select one or more:...

Generally Accepted Accounting Principles (GAAP) are created by: (Select all that apply) Select one or more: A. The Securities and Exchange Commission B. The Generally Accepted Accounting Principles Task Force C. The Sarbanes Oxley Act D. The Financial Accounting Standards Board E. The Public Company Accounting Oversight Board Which of the following is included as a component of stockholders' equity? Select one: A. Accounts payable B. Buildings C. Dividends D. Prepaid property taxes E. Retained earnings As inventory and property...

A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles.

A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles. Renters usually pay rent on a quarterly basis at the beginning of the quarter. The owners contend that the critical event that motivates revenue recognition should be the date the cash is received from renters. After all, the money is in hand and is very seldom returned. ...

Question

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

Solutions

Expert Solution

Related Solutions

1. On September 17, 2021, Ziltech, Inc., entered into an agreement to sell one of its...

Generally Accepted Accounting Principles (GAAP) are created by: (Select all that apply) Select one or more:...

A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles.