Question

On November 1, 2021, Warren Co. adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by April 30, 2022. On December 31, 2021, the company's year-end, the following information relative to the discontinued division was accumulated:

Operating loss Jan. 1–Dec. 31, 2021	$	74	million
Estimated operating losses, Jan. 1 to April 30, 2022		96	million
Excess of fair value, less costs to sell, over book value at Dec. 31, 2021		11	million

In its income statement for the year ended December 31, 2021, Warren would report a before-tax loss on discontinued operations of:

Multiple Choice

• $170 million.

• $159 million.

• $74 million.

• $63 million.

Answer 1

Solution

Operating Loss = $74 million

Estimated Operating Loss = $96 million

Excess of Fair Value = $11 million

Warren will report before-tax loss on discontinued operations of $74 million in its income statement for the year ended December 31, 2021.

Explanation:

Operating Loss: Income statement will include actual operating loss from discontinued Operations.

Estimated Operating Loss: Income statement only includes operating losses which are actually incurred, but it doesn't include operating losses on estimate basis. Therefore, Estimated Operating Loss will not be included in Income statement.

Excess of Fair value: As we know, excess amount of fair value over the book value is unrealized gain. Unrealized gain doesn't get reported in Income statement, It will be included in Income statement once it is realized.