Question

Mary Jones Inc. reported $165 million of Income from Operations for its year ended December 31, 2011. This income included a gain on sale of the Mary Jones family of brand names to A.R. Samuels, for total proceeds of $278 million. At the time of disposal, the brand names had a book value of zero because they had been developed internally by Mary Jones. Soon after the disposal, in January 2012, the company changed its name to Evergreen & Florence Companies to reflect the sale of its Mary Jones brand names. For its year ended December 28, 2013, Evergreen & Florence reported Income from Operations of $83.9 million, after deducting the following asset impairment losses:

a.
Determine the gain on sale that Mary Jones reported in 2011 when it disposed of its brand names.(Enter your answer in millions.)

b.

What would have been the company's Income (Loss) from Operations for this year had it not sold its Mary Jones brand names? (Enter your answer in millions.)

c.
Determine the Income from Operations that Evergreen & Florence would have reported in 2013 had its impairment losses been zero. (Enter your answer in millions.)

d.
What percentage of operating income (before impairment) did the 2013 impairment losses represent?(Round percentage values to 1 decimal place.)

Answer 1

Answer and Explanation:

The computation is shown below:

a. The gain on sale is

= Book value of brand names - sales consideration

= $0 - $278 million

= -$278 million

b. Income or loss from operations

= Income from operations + gain on sale

= $165 million - $278 million

= -$113 million

c. Income from operations before impairment loss

= Income from operations + impairment loss

= $83.9 million + $13.1 million

= $103 million

d. The percentage of operating income is

= Impairment loss ÷ Income from operations before impairment loss

= $13.1 million ÷ $103 million

= 12.72%

We simply applied the above formulas