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, 2018. 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 2018.
• Foxtrot's income tax rate is 40%.
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In the income statement for the year ended December 31, 2018, Foxtrot Co. would report:

Question

Quizplus · Accepted Answer

According to GAAP, the Footwear Division qualifies as a component of the entity and should be reported separately as discontinued operations. Therefore, Foxtrot Co. must report income (loss) from its continuing and discontinued operations separately in the income statement for the year ended December 31, 2018. The income (loss) on its total operations for the year without separation (option A) is not appropriate because the discontinued operations must be separately reported. Reporting income (loss) on its continuing operation only (option B) is not appropriate because it does not reflect the impact of the discontinued operations. Finally, income and gains separately from losses (option D) is not appropriate because income from continuing operations and income (loss) from discontinued operations are not classified as gains or losses. Therefore, the best choice is C.