Other Income Statement Items Bold Company has 3 major operating divisions and on May 31 decided to sell its Genetic Research Division to Anthrax Corporation for

$1,200,000. Anthrax agreed to take all of the division’s assets and liabilities. In the 3 months between the signing of the agreement and the actual transfer of ownership, the division reported revenues of $210,000 and total expenses of

$170,000. The division had total assets of $1,590,000 and liabilities of $750,000 at the time of transfer on August 31. In the first 5 months of the year, the division reported revenues of $450,000 and expenses of $416,000. Bold Company spent

$75,000 finding a purchaser and another $58,000 for the legal costs of completing the sale.

a. What, if any, income of the Genetic Research Division should be reported in Bold’s income statement for the year? How should it be reported?

b. What amount of gain or loss on the sale of the division should be reported in Bold’s income statement for the year?

c. This is the first ttme Bold has sold an operating division, and it does not intend to do so again in the foreseeable future. Should the gain or loss on the sale be reported as an extraordinary item? If not, how should it be reported?

d. Justify the reporting treatment of discontinued operations and the gain or loss on the sale of the Genetic Research Division from the perspective of a potential investor in Bold’s common stock. What impact is the sale of the division likely to have on Bold’s reported earnings for the following year?

e. What are some factors in addition to the division’s net income or loss that should be taken into consideration when deciding whether or not to dispose of an operating division?

f. If Bold Company were to invest the money received from the sale of the division in a certificate of deposit, what rate of interest would Bold Company need to earn to equal the earnings it was making on the division that was sold? Is this likely to occur? Was the decision to sell the division wise or unwise? Explain.