Discontinued Operations Bagel Corporation Operates Several Stores in British Columbia (Vancouver, Victoria

question 125

Essay

Discontinued operations
Bagel Corporation operates several stores in British Columbia (Vancouver, Victoria, Kamloops, Penticton, and Prince George). The restructuring of its organization on November 20, 2020, has led to the decision to sell its Prince George store. In preparing financial statements at December 31, 2020, the following information was made available:
1. The Prince George operation incurred a loss of $283,500 for the 2020 calendar year, including $225,000 for the period January 1 to November 20, 2020.
2. Estimated costs to sell are $300,000.
3. At December 31, 2020, the fair value of the Prince George assets is estimated at $7 million and the carrying (book) value is $7.3 million.
4. The combined provincial and federal income tax rate is 30%.
5. It is estimated that the operation will lose an additional $250,000 before it is sold.
Instructions
a)The Prince George operation qualifies for reporting as a discontinued operation. What amount should be reported in the discontinued operations section of Bagel’s 2020 income statement?
b)In early 2021, the Prince George operation is sold for $8.5 million, with actual costs to sell of $400,000. Additional disposal costs related to the sale are $500,000. The operation lost an additional $150,000 before it was sold. What amount should be reported in the discontinued operations section of Bagel’s 2021 income statement?

---

Definitions:

Crowded Market

A market characterized by a high level of competition, with many businesses offering similar products or services.

Make-Or-Buy

A strategic decision regarding whether to produce goods internally or purchase them from an external supplier.

Decision Tree

A graphical tool used in decision making to visually represent different choices and their possible outcomes, including chance event outcomes, costs, and utilities.

EMV

Expected Monetary Value; a calculation in decision theory and statistics used to determine the expected value of an uncertain outcome by combining the probabilities of possible outcomes with their respective gains or losses.