Question

Roco Company manufactures both industrial and consumer electronics. Due to a change in its strategic focus, the company decided to exit the consumer electronics business, and in 2016 sold the division to Sunny Corporation. The consumer electronics division qualifies as a component of the entity according to GAAP. How should Roco report the sale in its 2016 income statement?

a) Include in income from continuing operations as a nonoperating gain or loss.
b)As restructuring costs.
c) As a discontinued operation, reported below income from continuing operations.
d) None of the above.

Answer 1

Roco Company should report the sale of its consumer electronics division as a discontinued operation, which is shown below income from continuing operations on the income statement, in accordance with GAAP.

Step-by-step explanation:

When Roco Company sells its consumer electronics division to Sunny Corporation, the sale should be reported as a discontinued operation, according to Generally Accepted Accounting Principles (GAAP). This type of transaction is reported below income from continuing operations on the income statement. The discontinued operation is separated from the company's continuing operations because it represents a strategic shift and will no longer have any significant continuing cash flows. Any gain or loss from the sale of the division is included in the results of discontinued operations.