During July 2007 Red Company decides to dispose of one of its subsidiaries which qualifies for accounting as a discontinued operation. At the July 2007 measurement date Red Company estimates that it will report net losses of $1,500,000 dollars from the measurement date until the disposal date which is expected to be in April 2008. In addition, Red estimates that it will lose $300,000 on the sale of the segment. How much gain or loss on discontinued operations will Red report in its 2007 income statement (net of income taxes)?

Question

Quizplus · Accepted Answer

The gain or loss on discontinued operations is calculated as the sum of post-measurement date operating losses and the loss on disposal, less any gains on disposal. Therefore, the loss on discontinued operations in this case would be:
($1,500,000) + ($300,000) = $1,800,000 loss.
Since it is a loss, it will be reported with a negative sign.

During July 2007 Red Company Decides to Dispose of One