Question

Merrell Corp. discontinued a component of its business on October 17. For the year, the discontinued component had operating income of $4,000,000. At the time of the sale, the assets of the discontinued component had book values of $10,000,000 and were sold for $12,000,000. Income from operations of the continuing parts of the company were $14,000,000 for the year. Assuming a 40% tax rate, what amount would Merrell report as income from discontinued operations?

Answer 1

Net Income amount from Discontinuing Operations is $3,600,000

Step-by-step explanation:

given data

operating income = $4,000,000

book values = $10,000,000

sold for = $12,000,000

Income from operations = $14,000,000

tax rate = 40%

to find out

amount that Merrell report as income from discontinue operation

solution

we find first here Gain on Sale of Assets of Discontinued Operations that is

Gain on Sale of Assets = $12,000,000 - $10,000,000

Gain on Sale of Assets = $2,000,000

and

Total Income from Discontinuing Operation is

Total Income = $4,000,000 + $2,000,000

Total Income = $6,000,000

and

Net Income from Discontinuing Operations will be

Net Income from Discontinuing Operations = $6,000,000 – ( 40% of $6,000,000 )

Net Income amount from Discontinuing Operations is $3,600,000