Question

Regal Corporation has a component that is a discontinued operation. The revenues and expenses of the component were $120,000 and $100,000 respectively. The component was sold with a resulting loss of $80,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net of tax effects) that will be reported on the income statement.

Answer 1

Answer:

$36,000 loss

Explanation:

net effect after taxes = [(operation's revenue - operation's expenses) - gain/loss resulting from sale] x (1 - tax rate)

= [($120,000 - $100,000) - $80,000] x (1 - 40%) = ($20,000 - $80,000) x 60% = -$60,000 x 60% = -$36,000 or $36,000 loss