Question

On December 30, 2017, the Board of Directors of Blue Manufacturing, Inc. committed to a plan to discontinue the operations of its Owl division. Blue estimated that Owl's 2018 operating loss would be $750,000 and that the fair value of Owl's facilities was $450,000 less than their carrying amounts. The estimate for the 2018 operating loss turned out to be correct. Owl's 2017 operating loss was $1,000,000, and the division was actually sold for $400,000 less than its carrying amount in 2018. Blue's effective tax rate is 35%. In its 2017 income statement, what amount should Blue report as loss from discontinued operations

Answer 1

Answer:

$942,500

Explanation:

Calculation to determine what amount should Blue report as loss from discontinued operations

Using this formula

Loss from discontinued operations=[(Operating loss+Fair value)*Tax rate]

Let plug in the formula

Loss from discontinued operations=[($1,000,000+ $450,000)* (100% - 35% tax rate)]

Loss from discontinued operations=$1,450,0000*65%

Loss from discontinued operations= $942,500

Therefore what amount should Blue report as loss from discontinued operations is $942,500