Exercise 4-9 (Algo) Discontinued operations; disposal in subsequent year; solving for unknown [LO4-4] On September 17,...
Exercise 4-9 (Algo) Discontinued operations; disposal in subsequent year; solving for unknown [LO4-4] On September 17, 2021, Ziltech, Inc., entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles. By December 31, 2021, the company’s fiscal year-end, the division had not yet been sold, but was considered held for sale. The net fair value (fair value minus costs to sell) of the division’s assets at the end of the year was $13 million. The pretax income from operations of the division during 2021 was $3 million. Pretax income from continuing operations for the year totaled $16 million. The income tax rate is 25%. Ziltech reported net income for the year of $6.3 million. Required: Determine the book value of the division's assets on December 31, 2021.
Book value of division's assets= ?
Please write out how you get what you get. I know someone else asked a question similar to this but some of the numbers they got I do not understand how. So if you subtract something write it in () or something. Please. And if there is an easy formula or something let me know. I know the solutions shows net income pretax of 12 mil. with (7.2/.60) but I don't understand how and why)
Homework Answers
Calculation of book value of the division's assets on december 31.2021
It is given that
Net income after tax = $6.3 Million
(reported during the year)
Tax rate is = 25%
Then: Pretax Income will be
Pre-tax Income = Net income after tax / (1 - Tax rate)
= $6.3 Million / (1 - 25%)
= $6.3Million 
0.75
= $ 8.4 Millions
This calculation is come from the income after tax in which already include the tax. in other words net income recorded is 75% and we need to find pre- tax income 100% of income that is why this calculation is done 6.3 millions is 75% in which 25% tax has already been deducted and we need to find book value pre tax income that is $ 8.4 million (100% ) this is just for better understanding.
Calculate total of pre tax income:
Total pre tax income = (pre- tax income from continuing operation) + (Pre-tax income of division)
= $3 Millions + $16 Millions
= $19 Millions
Calculation of loss on sale of division asset
Loss to be recognised = $19 Millions - ($8.4Millions)
= $ 10.6 Millions
calculation of book value of division at the end of the year
Book value of the division asset = net fair value of the division's asset + Loss on sale of division
= $13 Millions + $10.6 Millions
Book value of divisions asset = $23.6 Millions
Ziltech has already booked their income pre tax income in thier financial statement that is $6.3M and pretax income is $8.4M but total of pre tax income is $19M hence diffrence between these two figures has to consider as loss on sale only
book value of should be come from sum of net fair value and loss on sale value of divisions asset
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