The Division's Book Value and Fair Value Less Cost to Sell

question 7

Multiple Choice

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2013 income statement?

• A)$2,000,000 loss.
• B)$2,500,000 loss.
• C)None.
• D)$500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.

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Definitions:

FIFO Method

"First In, First Out", an inventory valuation method where the first items placed into inventory are the first sold, affecting the cost of goods sold and inventory value.

Equivalent Units

A concept in process costing used to convert partially finished goods into a number of complete units of output, facilitating cost calculation.

Conversion

The process of changing or causing something to change from one form to another. In manufacturing, it often refers to the process of turning raw materials into finished goods.

Equivalent Units

A concept used in cost accounting to express the amount of work or materials in terms of fully completed units of output.