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cpa2010
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Joined: 02 Feb 2010
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Posted: 20 Jul 2010 at 10:51 \| IP Logged

The paper division of a company generates an operating profit of $10,000 per month. On the final day of Year One, company officials decide to sell this division which has a book value of $540,000. These officials believe they can sell the paper division for $570,000 but only after spending $70,000 needed to make the sale. The paper division meets the rules to be classified as an asset held for sale. In addition, the division qualifies as a discontinued operation. It is actually sold for the anticipated amount during February, Year Two. Ignore income taxes. What does the company report at the bottom of its Year One income statement for the discontinued operation

A -0-

< id=answer-13856 value=13856 = name=answer> B $50,000 profit

< id=answer-13857 value=13857 = name=answer> C $80,000 profit

< id=answer-13858 value=13858 = name=answer> D $120,000 profit

ans is c

I have a confusion ..when the cost to sell is given wouldnt it be lower of fmv or carrying value less cost to sale ...

pls help

1tryCPA
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Posted: 20 Jul 2010 at 12:27 \| IP Logged

Lower of carrying value or FMV less costs to sell. We are selling at FMV, so costs are netted against our selling price, not carrying value

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CPASTONE
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Posted: 20 Jul 2010 at 14:48 \| IP Logged

CPA2010
A loss is recognized for recording the impairment of component in the year it is held for sell, which is calculated as Net Realizable value - Book value. Where Net Realizable value is Selling Price less Costs to transact sales.

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ebacmom
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Posted: 20 Jul 2010 at 22:46 \| IP Logged

I'm confused about the answer myself... so the impairment loss is $40,000? So why is the answer $80,000 profit?

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jsanders02
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Posted: 21 Jul 2010 at 00:07 \| IP Logged

You are forgetting the $120,000 of profit the division
earned during the 12 months of operation.

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