Question

During 2017, Lopez Corporation disposed of Pine Division, a major component of its business. Lopez realized a gain of $3,000,000, net of taxes, on the sale of Pine's assets. Pine's operating losses, net of taxes, were $3,500,000 in 2017. How should these facts be reported in Lopez's income statement for 2017?

Answer 1

Answer: Income from continuing operations = $0

Income from discontinued operations= -$500 000

Explanation:

Because Lopez Corporation disposed of a significant part of its business, this is known as an unusual item. Unusual items are transactions that have a massive impact on the financials of the business, but that don't happen regularly in the daily operations of said business. An example of this is selling off a massive component of the business. Because this has a large impact on the financials, this figure is allowed to be shown separately in the income statement, regardless of whether it made a profit or a loss. This is known as income/loss from discontinued operations. Continued operations is the income/loss generated from the parts of the business that are still operational, and in a sense shows the actual amount the business made presently.