The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2013 income statement?
A)$2,000,000 loss.
B)$2,500,000 loss.
C)None.
D)$500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.

Question

Quizplus · Accepted Answer

The loss on discontinued operations should be equal to the difference between the book value and fair value less cost to sell, which is $500,000 ($3,000,000 - $2,500,000). Therefore, the before-tax amount reported as loss on discontinued operations should be $2,500,000. Option D is incorrect because the impairment loss of $500,000 is already included in the difference between book value and fair value less cost to sell and should not be reported separately in continuing operations.

The Division's Book Value and Fair Value Less Cost to Sell