Question
The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance division. Both divisions are considered separate components. The finance division has been
The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance division. Both divisions are considered separate components. The finance division has been unprofitable, and on October 3, 2014, Ottoboni adopted a formal plan to sell the division, which subsequently was considered held for sale. The before-tax operating loss of the division for the year was $270,000. The companys effective tax rate is 40%. The after-tax income from continuing operations for 2014 is $600,000. On December 31, 2014, the companys fiscal year-end, the book value of the assets of the finance division was $2,100,000. What will the firm report for discontinued operations for 2014, if anything, under each of the following scenarios?
a. The sale was completed on December 31, 2014, for
$2,400,000.
b. The sale was completed on March 15, 2015. Fair market
value on December 31, 2014 was $2,400,000.
c. The sale was completed on March 15, 2015. Fair market
value on December 31, 2014 was $2,000,000.
My professor posted his answers :
a. 18,000=0.6*(-270,000+(2,400,000-2,100,000))
b. -162,000=0.6*(-270,000)
c.-222,000=0.6*(-270,000+(2,000,000-2,100,000))
Can you guys tell me where the 0.6 comes from? Or is it an error that is supposed to be 0.4?
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