On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2021.
The following additional facts pertain to the transaction:
The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
The book value of Footwear's assets totaled $48 million on the date of the sale.
Footwear's operating income was a pre-tax loss of $10 million in 2021.
Foxtrot's income tax rate is 25%.
In the income statement for the year ended December 31, 2021, Foxtrot Co. would report income from discontinued operations of:
Multiple Choice
$24.5 million.
$16.5 million.
$14.0 million.
$22.0 million.
Answer
$16.5 million
Explanation
75% (i.e., 1 – tax rate) × $22 million ($32 million gain on asset sale – $10 million operating loss)
Thanks
