Prescott Co. management has committed to a plan to dispose of a group of assets associated with

Question:

Prescott Co. management has committed to a plan to dispose of a group of assets associated with the manufacture of railroad cars. This group of assets qualifies as a component of an entity for financial reporting purposes. As of December 31, 2008, management has located a likely purchaser and is in negotiations to complete the sale. It’s expected that the component will be sold in late 2009 for $$5,900,000$ and that the following costs will be incurred in conjunction with the sale:

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The railroad manufacturing assets have an historical cost of $$12,000,000$ and accumulated depreciation of $$5,500,000$ computed using the straight-line method. These assets generated a net loss during 2008 of $$475,000$ on sales of $$1,800,000$ and are expected to generate a loss of $$525,000$ during 2009.
During 2008, Prescott had operating income, including the railroad component, of $$7,400,000$ and total productive assets, including the railroad component, of $$94,500,000$ (net of cumulative straight-line depreciation). Sales for the company as a whole for the year ended December 31, 2008 were $20,000,000.
Required:
1. Compute the carrying value at December 31, 2008 of the railroad assets held for sale. How are these assets reported on the December 31, 2008 balance sheet?
2. Prepare a partial income statement including the discontinued operations section for Prescott Co. for the year ended December 31, 2008. Ignore income taxes.
3. Ignoring income taxes, compute return on continuing operating assets and operating margin for Prescott Co. for 2008. Now, assuming that the provisions of SFAS No. 144 did not apply to assets held for sale, compute ROA and operating margin for Prescott for 2008.
Contrast the two sets of ratios and comment on your results.
4. How will the group of railroad assets be accounted for during 2009?