Question

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3. On October 28, 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should the company report as loss on discontinued operations in its 2021 income statement?

A) $2,000,000 loss.

B) $2,500,000 loss.

C) No loss would be reported.

D) $500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.

4.  On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2021.

The following additional facts pertain to the transaction:\

•     The Footwear Division qualifies as a component of the entity according to

       GAAP regarding discontinued operations.

•     The book value of Footwear's assets totaled $48 million on the date of the sale.

•     Footwear's operating income was a pre-tax loss of $10 million in 2021.

•     Foxtrot's income tax rate is 25%.

In the income statement for the year ended December 31, 2021, Foxtrot Co. would report:

A) Income (loss) on its total operations for the year without separation.

B) Income (loss) on its continuing operation only.

C) Income (loss) from its continuing and discontinued operations separately.

D) Income and gains separately from losses.

20) Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed.

Indiana:

A) Recognized no gross profit or loss on the project in 2021.

B) Recognized $6 million loss on the project in 2021.

C) Recognized $9 million gross profit on the project in 2021.

D) Recognized $36 million loss on the project in 2021.

Answer 1

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