Question

During 2017, Lopez Corporation disposed of Pine Division, a major component of its business. Lopez realized a gain of $3,000,000, net of taxes, on the sale of Pine's assets. Pine's operating losses, net of taxes, were $3,500,000 in 2017. How should these facts be reported in Lopez's income statement for 2017?

A. 0 500,000 loss
B. 3,000,000 gain 3,500,000 loss
C. 500,000 loss 0
D. $3,500,000 loss $3,000,000 gain

Answer 1

Lopez Corporation should report a gain of $3,000,000 and an operating loss of $3,500,000 on the income statement, resulting in a net loss of $500,000 from the disposal of Pine Division. Hence, option (D) is correct.

Step-by-step explanation:

During 2017, Lopez Corporation disposed of Pine Division and realized a gain of $3,000,000, net of taxes, from the sale. Concurrently, the division's operating losses amounted to $3,500,000, also net of taxes.

On the income statement, these would typically be reported on separate lines as: a gain on disposal of the division and as a component of operating losses. As a result, these should be reported as a gain of $3,000,000 and an operating loss of $3,500,000, arriving at a net loss of $500,000 for the entire transaction.