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Problem 7-5 (AICPA Adapted)
Dublin Company had two operating divisions, one man
machinery and the other breeds and sells horses. Both, dive’,
considered separate components. Hong, ie
The horse division has been unprofitable and on ‘November 1s ,
the entity adopted a formal plan'to sell the division. At Decent, ay
2021, the component was considered held for sale, ey
‘The sale was completed on April 30, 2022.
OnDecember31, 2021, the carrying amount of the assets of
division was P5,600,000. Ontbatdte, the ar-valu of te
cost of disposal was P4,000,000. le,
The before-tax operat
year was P1,500,000.
The after-tax income. 2 from continuin;
ig operations of Dubli
for 2021 was P8,000,000. The income tax rate is 30% oR
ing loss of the horse division for the Cit
What amount should be ‘Teported as netincome for: 20219
a. 4,500,000
b. 5,600,000
¢. 3,850,000
d. 6,250,000
Solution 7-5 Answer d
Income from continuing operations
1 COTE 8.00000)
Loss ftom discontinued operation > (1,750,01)
‘Net income for 2021 6250000
Fair value of assets of horse division oon
Carrying amount of assets $,000000
Impairment loss on December 31, 2021 (0000)
Operating loss of horse division for 2021 1 00,
Total loss (2,500,000)
Tax effect (30% x 2,500,000) _1sa00t
Loss from discontinued operation (15000
94
mana bi | el
