On May 1, Karla Co. agreed to sell the assets of its Formal Wear Division to Smith Co. The following additional facts pertain to the transaction:

• The Formal Wear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
• The book value of Formal Wear's assets totaled $48 million on December 31, 2021.
• Formal Wear's operating income was a pre-tax loss of $10 million in 2021.
• Karla's income tax rate is 25%.

Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets was $40 million at December 31, 2021. In the income statement for the year ended December 31, 2021, Karla Co. would report discontinued operations of:

Multiple Choice

• $18.0 million loss.

• $10.0 million loss.

• $7.5 million loss.

• $13.5 million loss.