Question

On November 1, 2018, Jamison Inc. adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by April 30, 2019. On December 31, 2018, the company's year-end, the following information relative to the discontinued division was accumulated: Operating loss Jan. 1-Dec. 31, 2018 $ 65 million Estimated operating losses, Jan. 1 to April 30, 2019 80 million Excess of fair value, less costs to sell, over book value at 15 million Dec. 31, 2018 In its income statement for the year ended December 31, 2018, Jamison would report a before-tax loss on discontinued operations of:

a. $50 million.
b. $65 million
c. $130 million.
d. $145 million

Answer 1

The before-tax loss on discontinued operations that Jamison Inc. would report for the year ended December 31, 2018, is $130 million. This figure incorporates the sum of the current operating loss and the estimated future losses minus the gain from fair value measurement.

Step-by-step explanation:

When reporting the loss on discontinued operations on the income statement, Jamison Inc. must consider both the operating loss incurred during the current year and the estimated losses up to the disposal date. The operating loss from January 1, 2018, to December 31, 2018, amounts to $65 million. The estimated operating losses from January 1, 2019, to April 30, 2019, are $80 million. According to GAAP, the gain from measuring the disposal group at fair value less costs to sell, which exceeds the book value, should be taken into account. This gain amounts to $15 million on December 31, 2018. Therefore, the total estimated loss on discontinued operations before gains on re-measurement is $65 million + $80 million = $145 million. After considering the gain, the reported before-tax loss on discontinued operations for the year ended December 31, 2018, should be $145 million - $15 million = $130 million.