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sanju06
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Joined: 23 Sep 2008
Online Status: Offline
Posts: 181

Posted: 06 Feb 2009 at 12:02 \| IP Logged

On October 1, 20X4, Host Co. approved a plan to dispose of one of the company’s operating

segments. Host expected that the sale would occur on April 1, 20X5 at an estimated gain of

$350,000. The segment had actual and estimated operating losses as follows:

1/1/X4 to 9/30/X4 $(300,000)

10/1/X4 to 12/31/X4 (200,000)

1/1/X5 to 3/31/X5 (400,000)

In its 20X4 income statement, what should Host report as a loss from discontinued operations before income taxes?

The correct answer is $500,000.

I can't understand this. The plan has been approved only on 10/1/04. Then why is the loss for the earlier period before 10/1/04 also included in the answer?

please help!

Thanks,

Sanjana

divyagovil1
Major Contributor

Joined: 30 Jan 2009
Location: India
Online Status: Offline
Posts: 1456

Posted: 06 Feb 2009 at 12:39 \| IP Logged

Sanjana,

We look at the "Period" in which segment was classified as held for sale.

"On October 1, 20X4, Host Co. approved a plan to dispose of one of the company’s operating segments"

"Host expected that the sale would occur on April 1, 20X5."

Thus, segment is classified as "held for sale" in period 2004. we don't look at the date, we look at the period. Thus, loss from 1/1/94 to 9/30/04 would be included in results from discontinued opeartions.

The results of discontinued operations of a segment are reported in discontinued operations in the period the segment is either disposed of or is held for sale.

Hope that helps!!

Edited by divyagovil1 on 06 Feb 2009 at 12:40

MARBNYC
Contributor

Joined: 17 Nov 2009
Location: United States
Online Status: Offline
Posts: 76

Posted: 15 Apr 2010 at 11:12 \| IP Logged

i had just stumpled on this same question, and had overlooked at the keyword - period. it tricked me bc im always thinking in terms of " the number of shares outstanding for a given number of months" and "spliting an expense evenly over the months it benefited"...well, im all clear now, let's just hope i can remember this during the test :)

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Marlene

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