Fox Co. successfully completed the sale of its Snack division in March 2021 that it decided...

Fox Co. successfully completed the sale of its Snack division in March 2021 that it decided to discontinue operations in November 2020.

From January 2021 through the date of the sale, the Snack Division generated a $600,000 operating profit. The Snack division was sold at a pre-tax gain of $1,000,000. Fox Co. has pre-tax profit from all operations in 2021 of $50,000,000. What is Fox Co’s Income from Discontinued Operations reported on its income statement in 2021?

Fox Co’s income tax rate is 30%.

A) $700,000

B) $1,120,000

C) $36,120,000

D) $1,600,000

E) $35,700,000

Solutions

Expert Solution

Income from operations of Discontinued division = $600,000

Income from disposal of discontinued division = $1,000,000

Income tax rate = 30%

Tax on Income from operations of Discontinued division = Income from operations of Discontinued division x Income tax rate

= 600,000 x 30%

= $180,000

Income from operations of Discontinued division, net of taxes = Income from operations of Discontinued division - Tax on Income from operations of Discontinued division

= 600,000 - 180,000

= $420,000

Tax on Income from disposal of discontinued division = Income from disposal of discontinued division x Income tax rate

= 1,000,000 x 30%

= $300,000

Income from disposal of discontinued division, net of taxes = Income from disposal of discontinued division - Tax on Income from disposal of discontinued division

= 1,000,000 - 300,000

= $700,000

Income from Discontinued Operations reported on income statement in 2021 = Income from operations of Discontinued division, net of taxes + Income from disposal of discontinued division, net of taxes

= 420,000 + 700,000

= $1,120,000

Correct option is (B)

ekkarill92 answered 1 year ago

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