Question

Parkland Co. is a heavy equipment manufacturer. In the most recent fiscal year they sold all of the assets related to its financing division. The financing operations had operations and cash flows clearly distinguishable, operationally, from the rest of the company. The CFO asks your advice on the following: Would the sale of the financing division be considered a discontinued operation? Explain. How should the sale be reported in the income statement?

The pertinent figures follow: Net income before income taxes (not including results from the financing division): $20 million Income tax rate: 15% Operating loss for the financing division: $2 million Loss on sale of assets for the financing division: $500,000

Assignment Prepare a professional memo to Mr. Rollins, the CFO of Parkland. Answer the CFO’s questions. Include the complete lower portion of their income statement.

Hint: Research Topic 205, Subtopic: 20. Support your answers with the Financial Accounting Standards Board Accounting Standards Codification.

Answer 1

• financing division is a dis continued operation.. because It's is a cash generating unit that it can be operating independently from other operations of company • Statement of profit and loss ( condensed) Profit from operating business 20 million Less income tax (3) million Profit. After tax from operating business 17 million Loss from dis continued business (2 million) • Loss / profit from dis continued business. is separately shown in profit & loss statement

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