On May 1, 2015, Bradley Corporation decided to sell one of its components that q

Question

On May 1, 2015, Bradley Corporation decided to sell one of its components that qualified as a discontinued operation. This component had an operating loss of $75,000 during 2015. At December 31, 2015, Bradley's year-end, it estimated the Component's fair value to be $500,000 and its net book value to be $480,000. Bradley also estimated the disposal costs would be $70,000.

The sale of the component was completed on March 1, 2016 for cash proceeds of $440,000. The component had an operating loss of $21,000 during the first two months of 2016. Assume that all the amounts are pre-tax and that Bradley’s tax rate for both 2015 and 2016 was 35%. For your answers, if there is a Loss, indicate using parenthesis ( ).

a. Determine the Results of Discontinued Operations (net of tax)* as of December 31, 2015:

b. For 2016, determine the following:

Discontinued Operations (Note 17):

     Income/Loss from Operations of Discontinued Operations (net of tax)

$

     Gain/Loss on Disposal of Discontinued Operations (net of tax)

$

Results of Discontinued Operations (net of tax)

$

Discontinued Operations (Note 17):

     Income/Loss from Operations of Discontinued Operations (net of tax)

$

     Gain/Loss on Disposal of Discontinued Operations (net of tax)

$

Results of Discontinued Operations (net of tax)

$

Explanation / Answer

a. Loss from discontinued operation in years 2015 = 75000

Deffred tax assets = 75000 x 35% = 26250

Reult of 2015 = 75000 - 26250

= 48750

b.

Loss from discontinued operations = 21000

Loss net of tax = 21000

Loss on sale of componenet = 440000 - 70000 - 480000

= (110000)

Result of 2016 = (21000 +110000)(1-0.35)

= 85150

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