On November 30, 2016, Pearman Company committed to a plan to sell a division tha

Question

On November 30, 2016, Pearman Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP, and was properly classified as held for sale on December 31, 2016, the end of the company’s fiscal year. The division was tested for impairment and a $400,000 loss was indicated. The division’s loss from operations for 2016 was $1,000,000. The final sale was expected to occur on February 15, 2017. What before-tax amount(s) should Pearman report as loss on discontinued operations in its 2016 income statement?

1. $1,400,000 loss.

2. $400,000 loss.

3. $400,000 impairment loss included in continuing operations and a $1,000,000 loss from discontinued operations.

4. None

On November 30, 2016, Pearman Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP, and was properly classified as held for sale on December 31, 2016, the end of the company’s fiscal year. The division was tested for impairment and a $400,000 loss was indicated. The division’s loss from operations for 2016 was $1,000,000. The final sale was expected to occur on February 15, 2017. What before-tax amount(s) should Pearman report as loss on discontinued operations in its 2016 income statement?

Explanation / Answer

Answer=1. $1,400,000 loss

Loss of operation+ Impairment loss=(1000000+400000)=$1400000

Types of Items Included in Results of Discontinued Operations for held for sale component-

a. Results of operations of the component.

b. Gain or loss on disposal of the component.

c. Impairment loss (and subsequent increases in fair value) of the component.

(1) Initial and Subsequent Impairment Losses A loss is recognized for recording the impairment of the component (i.e., any initial or subsequent write-down to fair value less costs to sell).

(2) Subsequent Increases in Fair Value A gain is recognized for any subsequent increase in fair value minus the costs to sell (but not in excess of the previously recognized cumulative loss).

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