Question

On August 1, 2016, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by June 30, 2017. On January 31, 2017, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated: Operating loss February 1, 2016 – Jan. 31, 2017 $132,000 Estimated operating losses, Feb. 1 – June 30, 2017 84,000 Impairment of division assets at Jan. 31, 2017 25,000 In its income statement for the year ended January 31, 2017, Rocket would report a before-tax loss on discontinued operations of:

Answer 1

Answer:

before-tax loss on discontinued operations = $157,000

Explanation:

Operating loss February 1, 2016 - January 31, 2017, $132,000

Impairment of division assets at January 31, 2017, $25,000

Rocket retailers must report a before tax loss = $132,000 + $25,000 = $157,000

Since the income statement is presented on January 31, 2017, it can only include the loss incurred until that date. Any estimated future losses will be included in future income statements.