Question
4-2 (Part Level Submission) On November 1, 2016, Campbell Corporation management decided to discontinue operation of its Rocketeer Division and approved a formal plan to
On November 1, 2016, Campbell Corporation management decided to discontinue operation of its Rocketeer Division and approved a formal plan to dispose of the division. Campbell is a successful corporation with earnings of $285 million or more before tax for each of the past five years. The Rocketeer Division, a major part of Campbell's operations, is being discontinued because it has not contributed to this profitable performance.
The division's main assets are the land, building, and equipment used to manufacture engine components. The land, building, and equipment had a net book value of $80 million on November 1, 2016.
Campbell's management has entered into negotiations for a cash sale of the division for $68 million (net of costs to sell). The sale date and final disposal date of the division is expected to be July 1, 2017. Campbell Corporation has a fiscal year ending May 31. The results of operations for the Rocketeer Division for the 2016-17 fiscal year and the estimated results for June 2017 are presented below. The before-tax losses after October 31, 2016, are calculated without depreciation on the building and equipment.
PeriodBefore-Tax LossJune 1, 2016, to October 31, 2016$(4,750,000)November 1, 2016, to May 31, 2017(3,040,000)June 1 to 30, 2017 (estimated)(570,000)
The Rocketeer Division will be accounted for as a discontinued operation on Campbell's financial statements for the year ended May 31, 2017. Campbell's tax rate is 25% on operating income and all gains and losses. Campbell prepares financial statements in accordance with IFRS.
(a)
Your answer is partially correct.Try again.Indicate how the Rocketeer Division's assets would be reported on Campbell Corporation's balance sheet as at May 31, 2017.
The Rocketeer Division's assets should be identified on Campbell Corporation's balance sheet as of May 31, 2017 as
Held for sale long term assets
Property Plant and Equipment
Held for sale current assets
and carried at
fair value
net realizable value
$
.
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(b)
Your answer is correct.Indicate how the discontinued operations and pending sale of the Rocketeer Division would be reported on Campbell Corporation's income statement for the year ended May 31, 2017.
Income from Continuing Operations
$XXX
Loss from Disposal of the Rocketeer Division Assets Less Applicable Income Tax Recovery
Gain from Disposal of the Rocketeer Division Assets Less Applicable Income Tax
Gain On Impairment of Rocketeer Division Assets Less Applicable Income Tax
Gain From Operation of the Rocketeer Division Less Applicable Income Tax
Loss from Operation of the Rocketeer Division Less Applicable Income Tax Recovery
Loss on Impairment of Rocketeer Division Assets Less Applicable Income Tax Recovery
$
Loss on Impairment of Rocketeer Division Assets Less Applicable Income Tax Recovery
Gain from Disposal of the Rocketeer Division Assets Less Applicable Income Tax
Loss from Operation of the Rocketeer Division Less Applicable Income Tax Recovery
Gain On Impairment of Rocketeer Division Assets Less Applicable Income Tax
Loss from Disposal of the Rocketeer Division Assets Less Applicable Income Tax Recovery
Gain From Operation of the Rocketeer Division Less Applicable Income Tax
$
Net Income / (Loss)$XXX
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(c)
Your answer is partially correct.Try again.On July 5, 2017, Campbell Corporation disposes of the division's assets at an adjusted price of $76 million. Explain how the discontinued operations and sale of the Rocketeer Division would be reported on Campbell Corporation's income statement for the year ended May 31, 2018. Assume the June 2017 operating loss is the same as estimated.
Income from Continuing Operations
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