Question

Company X sold one of its divisions for $15,000,000 at the end of 2018. At the time of sale, the division had a book value of $14,000,000. For 2018, the division reported a pretax loss of $2,500,000.Company X’s tax rate is 40%. What is Company X’s loss on discontinued operations for 2018?

Answer 1

Answer:

Loss on discontinued use of unit= $900,000

Explanation:

Company X sold one of its divisions for fair value of $15,000,000 while the book value is $14,000,000.

So they made a gain of $1,000,000

The division made a pretax loss of $2,500,000

Net loss= Pretax loss- Gain from sale

Net loss= 2,500,000- 1,000,000

Net loss= $1,500,000

Tax rate for Company X is 40% so taxed amount for the loss= 0.40* 1,500,000= $600,000

Loss on discontinued use of unit= Pretax loss - Tax

Loss on discontinued use of unit= 1,500,000- 600,000= $900,000