F&V co. is a clothing company that targets middle-age women. In addition to operating its Clothes business, for the last 5 years the company has run a Handbag division. The Handbag has not been as successful as management had hoped and the decision was made and announced on October 31, Year 9 to get out of the Handbag business. At this date, the applicable tax rate is 30%.

Assume the disposal occurs before year end: the Handbag division is sold on 11/30/Year 9 before the fiscal year ends on Dec. 31, Year 9.

3) Figure out the amount of the gain or loss on this disposal based on the information below.

The assets of the Handbag Division were originally purchased for $6,450,000, but have accumulated depreciation (thru the 10/31 announcement date) of $3,450,000. When the assets are classified as held for sale, a journal entry is made to transfer the assets from an operating category (like Plant, Property & Equipment) to an investment (usually in Current Assets since the sale is expected within a year). Assets held for sale are NOT depreciated. For example:

Assets Held For Sale 3,000,000 Accumulated Depreciation 3,450,000 Assets 6,450,000 note: Record classification of Handbag Division assets as held for sale

The Handbag Division was sold for $3,075,000, but $270,000 was spent in legal and closing costs to complete the sale. What is the gain or loss on this disposal? Put a minus sign in front of the number if it is a loss.

Gain(loss) on disposal: _______

4) Would we need to make a journal entry to record the gain (loss) on the disposal of the Handbag Division? If yes, please write down the journal entry should be recorded.

Data to solve problem:

6) Continue to Complete the "Gain/loss on sale of assets" and "Income before taxes" rows of the worksheet below. Note please enter "0" in the cell(s) if there is no gains nor loss on sale of assets