Question

Dee’s Hydroponics Corporation discontinued Water-Choice, its entire line of irrigation systems, in November of 2018. Prior...

Dee’s Hydroponics Corporation discontinued Water-Choice, its entire line of irrigation systems, in November of 2018. Prior to the disposal, Dee’s Hydroponics generated a loss of $600,000 (net of tax) for the period from January through the sale date. Because of the value of the real estate and machinery, there was a gain of $850,000 (net of tax) on the actual sale. How should this situation be reported in the financial statements of Dee’s Hydroponics for 2018? a) A $250,000 gain should be included in the 2018 income statement as a non-recurring item. b) A $600,000 loss should be included in income from operations and a $850,000 gain should be reported in the "discontinued operations" section of the income statement. c) A $250,000 adjustment to beginning retained earnings should be in the statement of retained earnings. d) A $250,000 gain should be in the "discontinued operations" section of the income statement.

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Answer #1

Answer : d) A $250,000 gain should be in the "discontinued operations" section of the income statement.

Explanation :

The situation be reported in the financial statements of Dee’s Hydroponics for 2018 as follows:

Dee’s Hydroponics

Income Statement (Partial)

For the Year Ended 2018

Income from continuing operations XX
Discontinued operations :
Loss from operations of Water-Choice (net of tax) (600,000)
Gain on disposal of real estate and machinery (net of tax) 850,000
Income from discontinued operations 250,000
Net Income XXX
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