Question

On July 1, 2020, Premier Publishing Company decided to discontinue their "Book Publishing Division". On ล Pre-Tax basis, the Book Publishing Division had an operating loss of $ 400,000 from January 1st throughJune 30th, and was anticipated to lose an additional $ 600,000 from July 1, 2020 through December 31, 2020. The carrying value of the Net Assets of the Book Publishing Division is $ 10,000,000, and the investment banker hired by Premier believes that the division will be sold for S 6,000,000, with the sale being completed on March 31, 2020. The investment banker will charge a fee of $ 200,000 for advising thedeal, and thus Premier Publishing can expect to keep $ 5,800,000 of the sales proceeds.
Assuming that the transaction qualifies as a "Discontinued Operation" and is designated for sale on July 1, 2020, and that Premier Publishing pays taxes at a rate of 20%, what is the TOTAL Discontined Operating thatPremier Publishing will report "below the line" on their Income Statement for the year ending December 31, 2020?

A.Total Discontinued Operations of Negative $ 600,000

B.Total Discontinued Operations of Negative $ 800,000

C.Total Discontinued Operations of Negative $ 1,000,000

D.Total Discontinued Operations of Negative $ 4,200,000

Answer 1

Under discontinued operation,

Expected gains or losses from operations in future periods not included until the period of their occurence. However, Indirect recognition of expected losses via impairement testing i.e. if carrying value > NRV, write down carrying value to NRV and impairement loss will also be recognized under discontinued operations.

Impairement loss
NRV = FMV - cost of disposal	5800000
Carrying value	10,000,000
Impairement loss	-4,200,000

Hence below option is correct;

D.Total Discontinued Operations of Negative $ 4,200,000

(As options doesn't take tax effect into consideration, tax is ignored)