Question

On October 28, 2016, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2016, the end of the company's fiscal year. The division's loss from operations for 2016 was $1,860,000. The division's book value and fair value less cost to sell on December 31 were $3,080,000 and $2,320,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2016 income statement?

Answer 1

Answer:

$2,620,000

Explanation:

Data provided in the question:

The division's loss from operations for 2016 = $1,860,000

The division's book value = $3,080,000

The division's fair value = $2,320,000

Now,

The Before-tax amount Mercedes should report as loss on discontinued operations in its 2018 income statement:

= Loss from operations + Impairment loss

= $1,860,000 + (book value - Fair value)

= $1,860,000 + ( $3,080,000 - $2,320,000 )

= $1,860,000 + $760,000

= $2,620,000