Question:
On September 17, 2013, Ziltech, Inc. entered into an agreement to sell one of its divisions that qualifies as
a component of the entity according to generally accepted accounting principles. By December 31, 2013,
the company’s fiscal year-end, the division had not yet been sold, but was considered held for sale. The
net fair value (fair value minus costs to sell) of the division’s assets at the end of the year was $11
million. Thepretax income from operations of the division during 2013 was $4 million. Pretax income
from continuingoperations for the year totaled $14 million. The income tax rate is 40%. Ziltech reported
net income for the year of $7.2 million.
Required:
Determine the book value of the division’s assets on December 31, 2013.
Answer:
Pretax income from continuing operations $14,000,000
Income tax expense (5,600,000)
Income from continuing operations 8,400,000
Less: Net income 7,200,000
Loss from discontinued operations $1,200,000
$1,200,000 60%* = $2,000,000 = Before-tax loss from discontinued
operations.
*1 – tax rate of 40% = 60%
Pretax income of division $4,000,000
Add: Loss from discontinued operations 2,000,000
On September 17, 2013, Ziltech, Inc. entered into an agreement to sell one of its divisions that qualifies as
a component of the entity according to generally accepted accounting principles. By December 31, 2013,
the company’s fiscal year-end, the division had not yet been sold, but was considered held for sale. The
net fair value (fair value minus costs to sell) of the division’s assets at the end of the year was $11
million. Thepretax income from operations of the division during 2013 was $4 million. Pretax income
from continuingoperations for the year totaled $14 million. The income tax rate is 40%. Ziltech reported
net income for the year of $7.2 million.
Required:
Determine the book value of the division’s assets on December 31, 2013.
Answer:
Pretax income from continuing operations $14,000,000
Income tax expense (5,600,000)
Income from continuing operations 8,400,000
Less: Net income 7,200,000
Loss from discontinued operations $1,200,000
$1,200,000 60%* = $2,000,000 = Before-tax loss from discontinued
operations.
*1 – tax rate of 40% = 60%
Pretax income of division $4,000,000
Add: Loss from discontinued operations 2,000,000
