On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. Maxy estimated that Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct. Alpha's Year 1 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%. In its Year 2 income statement, what amount should Maxy report as loss from discontinued operations? A. $350,000 $500,000 C. $420,000 D. $600,000 . B.

On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. Maxy estimated that Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct. Alpha's Year 1 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%. In its Year 2 income statement, what amount should Maxy report as loss from discontinued operations? A. $350,000 $500,000 C. $420,000 D. $600,000 . B.

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Chapter6: Accounting Quality

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Problem 9QE

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of
its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial
results. Maxy estimated that Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was
$300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct. Alpha's Year 1 operating loss was
$1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%.
In its Year 2 income statement, what amount should Maxy report as loss from discontinued operations?
OA. $350,000
B. $500,000
OC. $420,000
$600,000
D.

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