Question

Parisi Incorporated and Keeling International both sold some old equipment. Parisi sold their equipment because it was outdated, and they replaced it with new equipment. Keeling sold their equipment because the operations that needed the equipment are being shut down by the company. How would the income or loss from the sale of this equipment be reported differently by these companies?

A : Keeling would report their income or loss under discontinued operations, whereas Parisi would not.

B : Parisi would report their income or loss under discontinued operations, whereas Keeling would not.

C : Parisi would report their income or loss as a note to the financial statements, whereas Keeling would report their income or loss in the actual financial statements.

D: Keeling would report their income or loss as a note to the financial statements, whereas Parisi would report their income or loss in the actual financial statements.

Answer 1

The answer is option “A” - Keeling would report their income or loss under discontinued operations, whereas Parisi would not.

This is because Keeling is shutting down its operations for which the equipment is being sold. As such the company will have a separate part in its income statement that will be dedicated to ‘discontinued operations’. This will be done to communicate to users that the company has disposed-off assets that generated this much income.

Parisi, on the other hand, will report income from continuing operations.