Question

On October 28, 2013, 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, 2013, the end of the company's fiscal year. The division's loss from operations for 2013 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 Mercedes report as loss on discontinued operations in its 2013 income statement?

$2,000,000 loss

$2,500,000 loss

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

None

Answer 1

SOLUTION :

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

EXPLANATION :

LOSS ON IMPAIRMENT (25,00,000 - 30,00,000) = (500,000)

The division's loss from operations =(20,00,000)

TOTAL LOSS FROM DISCOUNTIUNED OPERATION = (25,00,000)

• impairment loss is caluclated when Fair value less cost to sell of a assets is less then the Book Value of the assest. here Book value exceed the fair value hence we calculated impairment loss.

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