INTERMEDIATE ACCOUNTING

MIDTERM EXAMINATION

ANSWER THE FOLLOWING QUESTIONS. SHOW YOUR SOLUTIONS.

PART 5

PROBLEM 21

Flavier Company has two divisions, North and South. Both qualify as
business components.

In 2017, the entity decided to dispose of the assets and liabilities of division
South and it is probable that the disposal will be completed early next year.

The revenue and expenses of Flavier Company are as follows:

2017 2016
Sales –North 5,000,000 4,600,000
Total nontax expenses – North 4,400,000 4,100,000
Sales – South 3,500,000 5,100,000
Total nontax expenses – South 3,900,000 4,500,000

During the later part of 2017, the entity disposed of a portion of division
South and recognized a pretax loss of 2,000,000 on the disposal.

The income tax rate is 30%.

What amount should be reported as loss from discontinued operation in

2017? ________________

PROBLEM 22

Wisdom Company committed to sell the comic book division, a component of

the business, on September 1, 2017.

The carrying amount of the division ws 4,000,000 and the fair value was
3,500,000.

The disposal date is expected on June 1, 2018. The division reported an

operating loss of 200,000 for the year ended December 31, 2017.
Before income tax, what amount should be reported as loss from
discontinued operation in 2017? _______________

PROBLEM 23

Aron Company decided on August 1, 2017 to dispose of a component of

business. The component was sold on November 30, 2017.

The net income for the current year included income of 5,000,000 form
operating the discontinued segment from January 1 to the date of disposal.
The entity incurred a loss on the November 30 sale of 4,500,000.

What amount should be reported as pretax income or loss from

discontinued operation for 2017?
(State whether income or loss) ____________________

PROBLEM 24

On September 30, 2017, when the carrying amount of the net assets of a
business segment was 70,000,000, Old Company signed a legally binding
contract to sell the business segment.

The sale is expected to be completed by January 31, 2018 at a sale price of

60,000,000.

In addition, prior to January 31, 2018, the sale contract obliged Old
Company to terminate the employment of certain employees of the business
segment incurring an expected termination cost of 2,000,000 to be paid on
June 30, 2018.

The segment revenue and expenses for 2017 were 40,000,000 and
45,000,000, respectively.

Before income tax, what amount should be reported as loss from

discontinued operation for 2017?
_______________

PROBLEM 25

On December 1, 2017, Greek Company committed to a plan to dispose of a

business component’s assets. The disposal met the requirements to be
classified as discontinued operation.
On that date, the entity estimated that the loss from the dispositions of the
assets would be 700,000 and the component’s operating loss was 200,000.

Before income tax, what amount of loss should be reported for discontinued
operation for 2017?