Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Play Cloth Company, a retailer of childrens clothing, decided to dispose of its European division. The company announced the plan to sell the division on

Play Cloth Company, a retailer of childrens clothing, decided to dispose of its European division. The company announced the plan to sell the division on 20 March 20X1. Once the announcement was made, management hired a professional services firm to assist with finding a buyer for the division. The firm would charge 4.5% commission on the sale of the division.

a. The European division had a carrying value of $51,100,000 and was listed for sale at a price of $49,000,000. The sale price was determined in reference to an independent fair value appraisal.

b. The division earned $5,500,000 from 1 July 20X0-19 March 20X1 and $1,000,000 between 20 March 20X1-30 June 20X1.

c. On 30 June 20X1 an appraisal indicated that the fair value of the division was approximately $49,500,000.

d. Play Cloth had total earnings from continuing operations (after tax) of $130,000,000 for the year ended 30 June 20X1.

e. Play Cloth has a tax rate of 25%.

Required:

i) Determine whether the European division qualifies as a discontinued operation.

ii) Calculate the total gain (loss) on sale for the European division.

iii) Prepare a partial SCI for the year ended 30 June 20X1 using the information provided.

Salamander Inc. is a food processing company that operates divisions in three major lines of food products: cereals, frozen fish, and candy. On 13 September 20X1, the board of directors voted to put the candy division up for sale. The candy divisions operating results had been declining for the past several years due to intense competition from large international players such as Nestl and Cadbury.

The board hired the consulting firm Atelier LLP to conduct a search for potential buyers. The consulting fee was to be 5% of the value of any sale transaction.

By 31 December 20X1, Atelier had found a highly interested buyer for the candy division, and serious negotiations were underway. The buyer was a food conglomerate based in Brazil; it offered $4.5 million cash.

On 25 February 20X2, after further negotiations, the Salamanders board accepted an enhanced Brazilian offer to buy the division for $4.7 million. The Salamander shareholders approved the sale on 5 March 20X2. The transfer of ownership took place on 31 March 20X2.

Salamanders income tax rate is 20%. Other information is as follows (before tax, in thousands of dollars):

1 January 20X1

31 December 20X1

Book Value

Fair Value

Fair Value

Candy divisions net assets:

Current assets

$910

$820

$740

Property, plant, and equipment (net)

4,400

3,200

3,400

Current liabilities

(900)

(900)

(900)

$ 4,410

$3,120

$3,240

Net earnings (loss) of the candy division, net of tax:

1 January to 31 December 20X1

450

1 January to 31 March 20X2

(560)

Required:

i) Prepare whatever journal entries are appropriate at 13 September 20X1, 31 December 20X1, 25 February 20X2, 5 March 20X2, and 31 March 20X2.

ii) Assume that the after-tax earnings from continuing operations amounted to $5 million in 20X1. Prepare a partial statement of comprehensive income (in thousands of dollars) showing the results of the discontinued operations.

Please answer all questions. I noticed some are ommitted. Thanks

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essays On The Quality Of Audited Financial Statements

Authors: Ulf Mohrmann

1st Edition

3832541853, 978-3832541859

More Books

Students also viewed these Accounting questions

Question

How do managers differ from nonmanagerial employees?

Answered: 1 week ago

Question

What is disclosure of cost method investment?

Answered: 1 week ago