[Sowelu]

Hi guys,

Ran across this question a couple times with different ‘correct’ answer — once in Roger review and had to get help from them and once in Ninja MCQ.

What should be the answer? Trying to get to the conceptual understanding on when gains on disposal would offset the losses in prior period.

The question is below. I searched online and ran into this question on different websites also providing 2 different answers. Please HELP!

During January of the previous year, Doe Corp. agreed to sell the assets and product line of its Hart division. The sale on January 15 of the current year resulted in a gain on disposal of $900,000. Not con­sidering any impairment losses, Hart’s operating losses were $600,000 for the previous year and $50,000 for the current-year period January 1 through January 15. Disregarding income taxes, what amount of net gain (loss) should be reported in Doe’s comparative current and previous years’ income statements?

Roger answer: Current year, $0; Previous year, $250,000

Here is their comment (20X4 is previous year): Note that the sale was actually COMPLETED on January 15, 20X5, and resulted in a gain of $900,000. Because the sale was actually completed, that portion of the gain equal to the 20X4 operating losses of $600,000 would be reported in 20X4, with the balance recognized in 20X5 (less the $50,000 operating loss reported through Jan. 15).

NINJA MCQ Answer: Current year, $850,000; Previous year, $(600,000)

The sale of a division would be a discontinued operation since its disposition represents a strategic shift. The discontinued operation would be recorded in the year the sale occurred.

FAR (Apr 2016) - 97
AUD (Jul 2016) - 99

[Andyred04]

I like Ninja's answer for this question. Not really sure what Roger is doing since revenues and expenses should be recognized in the period they were earned/incurred. For CY net the gain on sale with the operating losses in discontinued operations (which Ninja did 900,000 gain from sale less the 50,000 operating loss)

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

[Author]

Replies