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 income of $200,000 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)?
A) $200,000 gain
B) $0
C) $100,000 loss
D) $300,000 loss

Question

Quizplus · Accepted Answer

Red Company is required to report the estimated net income from the measurement date until the disposal date, which is $200,000. However, it is also required to estimate the loss on the sale of the segment, which is $300,000. Since the loss on the sale exceeds the estimated net income, the company will report a loss on discontinued operations. Therefore, the correct answer is choice C, $100,000 loss.

During July 2007 Red Company Decides to Dispose of One