Question

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, 2016. 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 pre-tax loss of $10 million in 2016. • Foxtrot's income tax rate is 40%. In the 2016 income statement for Foxtrot Co., it would report income from discontinued operations of:

Answer 1

Answer:

$13.2 million

Explanation:

Gain from sale of assets:

= sales value of assets - Book value of assets

= $80 - $48 million

= $32 million

Net gain of footwear's division at December 31:

= Gain from sale of assets - Operating losses

= $32 million - $10 million

= $22 million

Income from discontinued operations:

= Net gain at December 31 - Tax @40%

= $22 million - (40% × $22 million)

= $22 million - $8.8 million

= $13.2 million