Funnies-R-Us,Inc.committed to sell its comic book division (a component of the business)on September 1,2014.The book value of the division's net assets was $400,000 and the fair value of the net assets was $350,000.The disposal date is expected to be June 1,2015.The division reported a net loss of $15,000 for the year ended December 31,2014.Ignoring taxes,choose the correct reporting for discontinued operations in the income statement of Funnies-R-Us,Inc. ,for the year ended December 31,2014. Income (Loss)From Gain (Loss)From Disposal
Discontinued Operations of Discontinued Operations

Question

Quizplus · Accepted Answer

According to the accounting standard, a discontinued operation must meet two criteria: (1) the asset disposal must represent a strategic shift that has (or will have) a major positive effect on the company's operations and (2) the asset disposal must have a significant impact on the company's operations and financial results.
Since Funnies-R-Us,Inc. has committed to selling the comic book division, it meets the first criterion. However, due to the net loss of $15,000 in the year ended December 31, 2014 and the fair value of net assets being less than the book value, it meets the second criterion as well. Therefore, Funnies-R-Us,Inc. is required to report the comic book division as a discontinued operation in its income statement for the year ended December 31, 2014.
The loss from discontinued operations is reported separately from the regular operations, hence the loss of $15,000 should be shown as "Loss from discontinued operations" in the income statement. Additionally, the gain (loss) from disposal should also be reported separately from the loss from discontinued operations, which in this case would be a loss of $50,000 ($350,000 fair value less $400,000 book value). Thus, the correct reporting for discontinued operations in the income statement of Funnies-R-Us,Inc. is option B: $(15,000) $(50,000).