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● The Formal Wear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
● The book value of Formal Wear's assets totaled $50 million on December 31, 2024.
● Formal Wear's operating income was a pre-tax loss of $15 million in 2024.
● Tango's income tax rate is 25%.
Suppose that the Formal Wear Division's assets had not been sold by December 31, 2024, but were considered held for sale. Assume that the fair value of these assets was $30 million on December 31, 2024. In the income statement for the year ended December 31, 2024, Tango Company would report discontinued operations of:
A) $7.5 million loss.
B) $30.25 million loss.
C) $26.25 million loss.
D) $18.0 million loss.
Loss from disc ops = 30 – 50 = 20 M + additional pre-tax loss of 15M = 35M
Tax on disc ops = 35M x 0.25 = 8.75 M
Idsc ops net of tax = 35M – 8.75M = 26.25M
During its 2024 fiscal year, Jacobsen Corporation reported before-tax income of $700,000. This amount does not include the following two items, both of which are considered to be material in amount:
Unusual gain
$ 150,000
Loss on discontinued operations
(600,000)
The company’s income tax rate is 25%.
Jacobsen Corporation prepares its financial statements applying U.S. GAAP. In its 2024 income statement, Jacobsen would report income from continuing operations of:
A) $391,500.
B) $465,000.
C) $637,500.
D) $620,000
Income from continuing ops = 700,000 + 150,000 = 850,000
Tax on inc from cont ops = 850,000 x .25 = 212,500
Income from cont ops net of tax = 850,000 – 212,500 = 637, 500
Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2024:
Operating income
$ 252,000
Income on discontinued operations
68,000
All income statement items are subject to a 25% income tax rate. In its 2024 income statement, Freda's income tax
expense from continuing operations and total income tax expense would be:
A) $80,00 and $80,00, respectively.
B) $80,000 and $130,000, respectively.
C) $80,000 and $63,000, respectively.
D
) $63,000 and $80,000, respectively.
Tax on income from cont ops = 252,000 x 0.25 = 63,000
Tax on disc ops = 68,000 x 0.35 = 17,000
Total tax = 63,000 + 17,000 = 80,000
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