Question

2. On November 30, 2017, MoBull Co. decided to dispose of a segment B. The sale was not complete at

the end of 2017. During 2017, segment B generated operating income of $300,000. The historical

cost of segment B is $1,000,000 and the Accumulated Depreciation on segment B at 12/31/17 is

$400,000. At December 31, 2017, the fair value of segment B was estimated at $630,000 and the

cost to sell segment B was estimated to be $10,000. MoBull Co. sold segment B on May 17, 2018 for

$615,000. During 2018, segment B generated operating loss of $40,000. MoBull has a 30% tax rate

in all years.

a) Provide the journal entry to record any impairment of Segment B in 2017. If no journal entry,

justify why.

b) Provide the Discontinued Operations Section of the 2017 Multistep Income Statement.

MoBull’s common shares outstanding at the end of 2017 and 2018 were 525,000 and 475,000,

respectively. In 2018, MoBull declared a preferred stock dividend of $100,000, but only paid

$70,000 of the dividend in 2018. In 2018, MoBull declared a common stock dividend of $200,000

and paid $240,000.

c) Provide the 2018 Partial Income Statement, starting with Income from Continuing Operations of

$1,000,000. Include the first four lines and EPS information. Good format is required.

d) Provide the journal entry to record the disposal of Segment B. GJEF is required.

Answer 1

1.a) Net book value of Segment B=$(1,000,000Historical cost-400,000Accumulated Depreciation)

=$600,000.

Estimated net salleing price= $(630,000-10,000 cost to sell)=$620,000

As the net selling price is higher than the book value by $20,000(620,000-600,000), there is no need of impariment of asset. Hence no journal entry is required.

As the gain cannot be recorded in Income statement , it can be recorded in Revaluation surplus untill the segment is disposed.

b)Discontinued Operations Section of the 2017 Multistep Income Statement

Particulars	Amount($)	Amount($)
Operating Income	300,000
(-) taxes @30%	60,000
Net Income		240,000

c) MoBull Co.

Partial Inc. Statement For period ended 12/31/2018

Particulars	Amount($)	Amount($)
Income from Continuing Operations		1,000,000
Discontinued opertaions:
Loss from Operations of Discontinued Segment B(net of 30% tax)	(28,000)
Gain on Disposal of Discontinued Segment B(net of 30% tax)(15,000*70%)(refer( d )for gain calculation)	10,500	(17,500)
Net Income		982,500

EPS calculation:

ICO:

=(1,000,000-100,000)/{(525,000+475,000)/2}=1.8

DO:

=(17,500)/{(525,000+475,000)/2}=(0.035)

NI:

982,500-100,000/{(525,000+475,000)/2}=1.765

d)Gain on Disposal of Discontinued Segment B

Date	Particulars	Debit($)	Credit($)
17/05/2018	Cash	615,000
	Accumulated deoreciation if Seg B	400,000
	Historical cost of Segment B		1,000,000
	Gain on disposal(bal fig)		15,000