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On October 28, 2018, Mercedes Company committed to a plan to sell a division that qualified...

On October 28, 2018, Mercedes 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, 2018, the end of the company's fiscal year. The division's loss from operations for 2018 was $1,960,000.

The division's book value and fair value less cost to sell on December 31 were $2,890,000 and $3,550,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2018 income statement?

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Answer #2

Loss from discontinued operations = $1,960,000

Book value of discontinued division = $2,890,000

Fair value of discontinued division = $3,550,000

Gain on disposal of discontinued division = Fair value of discontinued division - Book value of discontinued division

= 3,550,000 - 2,890,000

= $660,000

Before-tax amount Mercedes should report as loss on discontinued operations in its 2018 income statement = Loss from discontinued operations - Gain on disposal of discontinued division

= 1,960,000 - 660,000

= $1,300,000

answered by: anonymous
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