On may 31, 20x1, the arlene corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. the assets of the component were sold on october 13, 20 x 1, for $1,200,000. the book value of those assets equal $1,000,000 at the time of the sale. the component generated an operating loss of $300,000 from january 1, 20x1, through disposal. the company’s tax rate is 25%. for what amount would the company report income from discontinued operations?

loss from discontinued operation 450,000

Explanation:

when selling assets above the book value we have a gain:

1,200,000 - 1,000,000 = 200,000

For the gain on assets above book value we must pay taxes.

200,000 x (1-0.25) = 150,000

the income from discontinued operation plus this gain generated a component of 300,000 loss

150,000 gain on sale + income from discontinued = -300,000

discontinued result: -300,000 + -150,000 = -450,000

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