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?

Answer 1

C. As a discontinued operation, reported below income from continuing operations

Step-by-step explanation:

First, the multiple choices for the question

a. Include in income from continuing operations as a non-operating gain or loss.

b. As an extraordinary item.

c. As a discontinued operation, reported below income from continuing operations.

d. None of the above.

According to General Accepted Accounting Principles (GAAP), the sale of a division that is qualified as component should be reported specially. Furthermore, it also requires that the operations of the component already disposed of or sold should be reported below the revenue reported under continuing operations for the year as a discontinued operation.

Since Roco's consumer electronics business qualifies as a component of the entity then it should be reported as stated by GAAP; specially reported and below income from continuing operations