2017, Comet Cares, Inc. decided to sell an unprofitable segment of its business.

Question

2017, Comet Cares, Inc. decided to sell an unprofitable segment of its business. The sale of this segment qualifies as a discontinued operation for financial reporting purposes. However, at the end of 2017, Comet had yet to sell the segment. On December 31, 2017 the segment assets had a fair value minus anticipated costs to sell of $3,500,000 and a book value of $3,700,000. For the year, the segment reported an operating loss of $500,000. In January of 2018, Comet Cares sold the segment for $3,600,000. Operating losses in the first month of 2018 amounted to S45.000. Assume a 40% tax rate in both 20 2018. 17 and a) What is the after-tax dollar value impact of the discontinued operation on 2017 Net Income (use ) for a decrease)? b) What is the after-tax dollar value impact of the discontinued operation on 2018 Net income (use ( ) for a decrease)?

Explanation / Answer

a) After Tax Dollar Value Impact after tax in 2017

loss from selling the asset = (3700000 - 3500000) = 200000

net income (-200000 - 500000) * (1-0.4) = (420000)

b)After Tax Dollar Value Impact after tax in 2018

loss from selling the asset = (3700000 - 3600000) = 100000

net income (-100000 - 45000 ) * (1-0.4) = (147000)

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