FA11 Problem: Discontinued Operations

FA11 Problem: Discontinued Operations

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Tenued Company

On June 1, Year 5, Tenued Company decided to discontinue the operations of its television cableservices division. Even though the television cable services division is not a separate corporation,financially and operationally it is a separate operation.On August 4

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, Year 5, Tenued closed a deal to sell the division to BuyUp Corporation. BuyUpwill assume responsibility for the current liabilities (e.g. accounts payable and accrued liabilities)that pertain to the division. The facts pertaining to the sale are as follows:Divisional assets; book values at June 1, Year 5 (cost of $1,322,000, less accumulated depreciation of $466,000) $856,000Division assets, estimated fair values at June 1, Year 5 686,000Liabilities assumed by purchaser; fair value = book value 180,000Purchase price paid by BuyUp Corporation $560,000Division revenue:January 1 – June 1, Year 5 800,000June 2 – August 4, Year 5 112,000Division profit (before taxes):January 1 – June 1, Year 5 55,000June 2 – August 4, Year 5 10,000Commission fee paid to the business brokerage that facilitated the sale 130,000Tenued Company marginal income tax rate 35% On December 31, Year 5, Tenued’s year end, the after tax income from all operations, includingthe cable television services division, was $ 500,000.

Required:

1.

Calculate the earnings (loss) from discontinued operations that Tenued would report inYear 5.2.

Explain what other disclosures and/or reclassifications are necessary in the Year 5comparative financial statements and note