Question
In: Accounting
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.
Solutions
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
Book value of division’s assets $19,400,000
Raffay answered 2 years agoRelated Solutions
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