21 May WHAT WOULD JACOB REPORT IN ITS 2015 INCOME STATEMENT REGARDING THE OFFICE EQUIPMENT DIVISION?
On September 1, 2015, Jacob Furniture Mart enters into an agreement to sell the assets of its office equipment division. This division qualifies as a component of the entity according to GAAP regarding discontinued operations. The division’s contribution to Jacob’s operating income for the year was a loss of $3 million, before taxes. Jacob has an average tax rate of 30%. Consider independently the appropriate accounting by Jacob under each of the three scenarios below:
Scenario 1: Assume that Jacob sold the division’s assets on December 31, 2015, for $24 million. The book value of the division’s assets was $19 million on December 31. Under these assumptions, what would Jacob report in its 2015 income statement regarding the office equipment division?
Scenario 2: Assume that Jacob had not yet sold the division’s assets by year end. Further, assume that the fair value of the assets, less any costs to sell the assets was $24 million at year end and was expected to remain at $24 million for the foreseeable future.. The book value of the division’s assets at year end was $19 million. Under these assumptions, what would Jacob report in its 2015 income statement regarding the office equipment division?
Scenario 3: Assume that Jacob had not yet sold the division’s assets by year end. Further, assume that the fair value of the assets, less any costs to sell the assets was $12 million at year end and was expected to remain at $12 million for the foreseeable future.. The book value of the division’s assets at year end was $19 million. Under these assumptions, What would Jacob report in its 2015 income statement regarding the office equipment division?
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