How should Hobson report tax on the discontinued operation?

Question

Quizplus · Accepted Answer

When a discontinued operation results in a pretax loss, it creates a tax benefit, which can be netted against the loss. Therefore, Hobson should report a tax benefit of $12 million to net against the $30 million pretax loss. Option A is incorrect because a tax receivable is only recognized when taxes have been overpaid or prepaid. Option C is incorrect because a deferred tax asset is recognized when the tax benefit will be received in the future, which is not the case in this scenario. Option D is incorrect because one of the answer choices is correct.

How Should Hobson Report Tax on the Discontinued Operation