On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20 X 1, for $1,200,000. The book value of those assets equal $1,000,000 at the time of the sale. The component generated an operating loss of $300,000 from January 1, 20X1, through disposal. The company's tax rate is 25%. For what amount would the company report income from discontinued operations?

Question

Clayton Mccarthy

Business

10 June, 09:39

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20 X 1, for $1,200,000. The book value of those assets equal $1,000,000 at the time of the sale. The component generated an operating loss of $300,000 from January 1, 20X1, through disposal. The company's tax rate is 25%. For what amount would the company report income from discontinued operations?

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Bo Decker · Answer 1

loss from discontinued operation 450,000

Explanation:

when selling assets above the book value we have a gain:

1,200,000 - 1,000,000 = 200,000

For the gain on assets above book value we must pay taxes.

200,000 x (1-0.25) = 150,000

the income from discontinued operation plus this gain generated a component of 300,000 loss

150,000 gain on sale + income from discontinued = - 300,000

discontinued result: - 300,000 + - 150,000 = - 450,000