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28 June, 22:47

Merrell Corp. discontinued a component of its business on October 17. For the year, the discontinued component had operating income of $4,000,000. At the time of the sale, the assets of the discontinued component had book values of $10,000,000 and were sold for $12,000,000. Income from operations of the continuing parts of the company were $14,000,000 for the year. Assuming a 40% tax rate, what amount would Merrell report as income from discontinued operations?

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  1. 28 June, 22:52
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    Net Income amount from Discontinuing Operations is $3,600,000

    Explanation:

    given data

    operating income = $4,000,000

    book values = $10,000,000

    sold for = $12,000,000

    Income from operations = $14,000,000

    tax rate = 40%

    to find out

    amount that Merrell report as income from discontinue operation

    solution

    we find first here Gain on Sale of Assets of Discontinued Operations that is

    Gain on Sale of Assets = $12,000,000 - $10,000,000

    Gain on Sale of Assets = $2,000,000

    and

    Total Income from Discontinuing Operation is

    Total Income = $4,000,000 + $2,000,000

    Total Income = $6,000,000

    and

    Net Income from Discontinuing Operations will be

    Net Income from Discontinuing Operations = $6,000,000 - (40% of $6,000,000)

    Net Income amount from Discontinuing Operations is $3,600,000
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