Question

During January of Year 6, Doe Corp. agreed to sell the assets and product line of its Hart division. The sale was completed on January 15, Year 7, and resulted in a gain on disposal of $900,000. Hart’s operating losses were $600,000 for Year 6 and $50,000 for the period January 1 through January 15, Year 7. Disregarding income taxes and assuming that the criteria for reporting a discontinued operation are met, what amount of net gain/(loss) should be reported in Doe’s comparative Year 7 and Year 6 income statements? Year 7 Year 6

Answer 1

Doe Corp. must report a $850,000 net gain during year 7, and a $600,000 net loss for year 6.

Revenue must be recognized when the earnings process is reasonably completed and Doe finished the sale of its assets on January 15, Year 7, therefore the $900,000 revenue has to be included in that year's income statement.