Question

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $1,100,000, and the company estimates their fair value to be $850,000. The component generated operating income for the year of $450,000. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes).

Answer 1

Answer:

$450,000

Explanation:

Note: In the given case there is no actual sale of the cosmetic line, it is still continued.

Therefore, there will be no realized gain or loss to be recorded in the books as the company did not even enter into any agreement to such sale.

But as the company is going to discontinue the note shall form part, as will affect the going concern concept for the component.

Therefore, entire amount earned from such operation of cosmetic line shall be reported as earnings from Discontinued operations.

Amount earned from operations of cosmetic line = $450,000, now, this shall be income from operations of discontinued component.