Discontinued Operations Q

  • Creator
    Topic
  • #189131
    Anonymous
    Inactive

    I thought that for Disc Ops (held for sale assets), we always show actual gains or losses (in this case losses during X2) as well as any impairment loss at a disposal date (none here). I’m assuming year end to be 12/31/X2. So this approach wound indicate I & II as correct answer; however, that is wrong and the right choice is II & III. Could anyone advise please?


    On November 1, 20X2, Smith Co. contracted to dispose of an industry segment on February 28, 20X3. Throughout 20X2 the segment had operating losses. These losses were expected to continue until the segment’s disposition. If a loss is anticipated on final disposition, how much of the operating losses should be included in the loss on disposal reported in Smith’s 20X2 income statements?

    I. Operating losses for the period January 1 to October 31, 20X2.

    II. Operating losses for the period November 1 to December 31, 20X2.

    III. Estimated operating losses for the period January 1 to February 28, 20X3.

Viewing 6 replies - 1 through 6 (of 6 total)
  • Author
    Replies
  • #611894
    Anonymous
    Inactive

    Since the disposal was determined on November 1, 20X2 only losses from that point forward would be related to the loss on disposal. January 1, 20X2 through October 31, 20X2 would be a loss on continuing operations.

    #611895
    Peach1024
    Member

    I think the answer is incorrect, and you're right – it should be I and II. This is a similar problem from Becker with the answer:

    On October 1, 20X4, Host Co. approved a plan to dispose of one of the company's operating segments. Host expected that the sale would occur on April 1, 20X5 at an estimated gain of $350,000. The segment had actual and estimated operating losses as follows:

    1/1/X4 to 9/30/X4 $(300,000)

    10/1/X4 to 12/31/X4 (200,000)

    1/1/X5 to 3/31/X5 (400,000)

    In its 20X4 income statement, what should Host report as a loss from discontinued operations before income taxes?

    The correct answer is $500,000.

    AUD - 88
    REG - 76
    BEC - 88
    FAR - scheduled for 10/20/14

    #611896
    juuustin
    Member

    III is definitely not right. You absolutely never include estimated losses on the previous period's statement. Olinto hammered that into my brain yesterday.

    MD Candidate: 10/1/14

    FAR - 87 (11/23/14)
    REG - 87 (1/30/15)
    BEC - 89 (4/19/15)
    AUD - 98 (5/30/15)

    Ethics - 100

    Experience - In Progress!

    #611897
    MattCPA18
    Member

    You include all operating losses in discontinued operations for the year that a component is considered held for sale.

    For example, if a component if considered held for sale on 4/30, all operating losses from 1/1 – 12/31 are going to be apart of discontinued operations. Estimated losses for future years and the actual loss or gain on sale is reported in discontinued operations is reported in the year that it incurred in.

    REG- 84

    AUD- 83

    BEC- 82

    FAR – 10/10

    #611898
    thehip41
    Participant

    I'm not sure where you got your questions but including estimated costs on the income statement is bad enough, but including cost from a different period back into 2012 is terribad.

    I'd pick I&II combo.

    It doesn't matter that it was a “continuing operation” up until November, it's all going into the discontinued operations area.

    FAR - 83
    AUD - 73 92
    BEC - 83
    REG - 88

    Licensed CPA in the state of Michigan

    #611899
    Mary 2496
    Member

    I just learned a new word – terribad. Awesome!

Viewing 6 replies - 1 through 6 (of 6 total)
  • The topic ‘Discontinued Operations Q’ is closed to new replies.