Problemon may 1 foxtrot co agreed to sell the assets of its, Ask an Expert

Accounting

Problem:

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011. The following additional facts pertain to the transaction:

The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
The book value of Footwear's assets totaled $48 million on the date of the sale.
Footwear's operating income was a pretax loss of $10 million in 2011.
Foxtrot's income tax rate is 40%.

Required:

Suppose that the Footwear Division's assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2011 income statement for Foxtrot Co., under discontinued operations it would report a:

$13.2 million income
$10 million loss
$6 million loss
16% gain.

Note: Please explain comprehensively and give step by step solution.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164933

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