On July 1, Zamora Inc. agreed to sell the assets of its Golfright Division to Benito Inc. for $71 million.The following additional facts pertain to the transaction:• The Golfrignt Division qualifies as a component of the entity according to GAAP regarding discontinued operations.• The book value of the Golfright's assets totaled $45 million on the date of the sale.Golfright's operating income was a pre-tax loss of $160 million in 2020.• Zamora's income tax rate is 40%.Suppose that the Golfright Division's assets had not been sold by December 31, 2020, but were considered held for sale. Assume that the fair valueof these assets at December 31 was $71 million.Calculate the amount of loss from discontinued operations Zamora Inc. will report in the income statement for 2020. (Please input answer without themillions, i.e. 100 million would be entered as 100)

Answered: On July 1, Zamora Inc. agreed to sell…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On July 1, Zamora Inc. agreed to sell the assets of its Golfright Division to Benito Inc. for $71 million.
The following additional facts pertain to the transaction:
• The Golfrignt Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
• The book value of the Golfright's assets totaled $45 million on the date of the sale.
Golfright's operating income was a pre-tax loss of $160 million in 2020.
• Zamora's income tax rate is 40%.
Suppose that the Golfright Division's assets had not been sold by December 31, 2020, but were considered held for sale. Assume that the fair value
of these assets at December 31 was $71 million.
Calculate the amount of loss from discontinued operations Zamora Inc. will report in the income statement for 2020. (Please input answer without the
millions, i.e. 100 million would be entered as 100)

Expert Solution

Step 1 Loss From Discontinued operation

Once a division fulfills criteria to classify as a discontinued operation it shall be disclosed in separate section of Operating income/(loss) from discontinued operations in comprehensive income statments. Further, the tax benefits associated with it shall be also be disclosed with such operating income/loss from discontinued opration. when an asset is classified as held for sale it is valued at the lower of carrying amount and fair value less cost to sell.

The change in fair value of assets classifies as held for sale which is related to discontinued operation shall be reported as part of the operating income/(loss) from discontinued operations in the comprehensive income statement.