Question

Jules Inc. reported net income of $1,345,200, income from continuing operations of $1,440,000 (after tax), and a loss from a discontinued component of $384,000 (pretax) for the year ended December 31, 2020. The company’s tax rate is 25%. The decision to dispose of the component was made on June 1, 2020, and the component was sold on November 30, 2020.

Compute net proceeds from the sale of the discontinued component if the carrying value of the business compo-nent was $475,000 on November 30, 2020 (the date of sale)

Answer 1

To compute the net proceeds from the sale of the discontinued component, subtract the carrying value of the business component from the loss from the discontinued component. The net proceeds will be $187,000.

Step-by-step explanation:

To compute the net proceeds from the sale of the discontinued component, you need to subtract the carrying value of the business component from the loss from the discontinued component. The carrying value of the business component was $475,000, and the loss from the discontinued component was $384,000 (pretax). Since the tax rate is 25%, you need to calculate the after-tax loss from the discontinued component by multiplying it by (1 - tax rate). Then, subtract the after-tax loss from the carrying value to find the net proceeds from the sale:

Net proceeds = Carrying value - After-tax loss

After-tax loss = Loss from discontinued component x (1 - tax rate)

Plugging in the values, we get:
After-tax loss = $384,000 x (1 - 0.25) = $288,000

Now, we can calculate the net proceeds:
Net proceeds = $475,000 - $288,000 = $187,000