On May 1, Foxtrot Co

question 92

Multiple Choice

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to GAAP
Regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2018.
• Foxtrot's income tax rate is 40%.
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Suppose that the Footwear Division's assets had not been sold by December 31, 2018, but were considered held for sale. Assume that the fair value of these assets was $40 million at December 31, 2018. In the income statement for the year ended December 31, 2018, Foxtrot Co. would report discontinued operations of a:

• A) $3 million loss.
• B) $10 million loss.
• C) $10.8 million loss.
• D) $18 million loss.

Analyze the effects of intra-entity equipment sales on depreciation and consolidated net income.

Understand and explain the concept of intra-entity transfers within consolidated financial statements.

Calculate the elimination amount for sales between parent and subsidiary companies.

Describe how intra-entity gross profit on a transfer of inventory is treated on a consolidation worksheet.

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Definitions:

Minimizing Losses

A strategy or approaches taken to reduce the amount of loss incurred in a business operation or investment.

Price Discrimination

A pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets or to different segments of consumers.

Senior Citizen Discounts

Discounts offered to elderly individuals, typically those aged 65 and older, to reduce the cost of goods and services for them.

Movie Tickets

The admission passes purchased to view films in theaters.