On September 17, 2018, Ziltech, Inc., entered into an agreement to sell one of i

Question

On September 17, 2018, 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. 2018. 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 $16 million. The pretax income from operations of the division during 2018 was $6 milion. Pretax income from continuing operations for the year totaled $19 million. The income tax rate is 40%. Zitech reported net income for the year of $90 million. Required Determine the book value of the division's assets on December 31. 2018, (Enter your answer in whole dollars.)

Explanation / Answer

Pretax income from continuing operations: $19millions
Income from continuing operations after tax: $19 * (1-0.40)=$11.4millions

Discontinued operation before tax: y
Discontinued operation after tax: y*(1-0.40)
Reported net income = Income from continuing operation after tax + discontinued operation after tax = $9 million
y*(1- 0.40)+$11.4m = $9m
Discontinued operation before tax: y =$ -4m

Discontinued operation before tax = pretax income from operations of the division $6 million +Impairment loss = $ -4m
Impairment loss = $ -10m

Impairment loss = Net fair value (fair value minus costs to sell) of the division’s assets $16 million - Book Value. =$ -10m
Book value=$16 m + $10 m = $26 million.

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