E4-9 on sept 17 2016 ziltech inc entered into an agreement to sell one of its di
ID: 2426269 • Letter: E
Question
E4-9
on sept 17 2016 ziltech inc entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted acounting principles by decemeber 31 2016 the companys fiscal year end the divison had not yet been sold, but was considered held for sale. the net fair value (fair value minus costs to sell) of the divisions assets at the end of the year was 11 million. the pretax income from operations of the divison during 2016 was $4 million. pretax income from continuing operations for the year totaled 14 million the income tax rate is 40%. ziltech reported net income for the year of $7.2 million.
Required Determine the book value of the divisions assets on december 31, 2016
Explanation / Answer
Answer: Pre tax income=$7200000/0.60
=120,00,000
Pre tax income Per division=Pretax income from operations+Pre tax income from continuing operations
=4,000,000+14,000000
=18,000000
Loss from sale of discontinued operations=18000000-12000000
=6000000
Book value of the division=FMV+Loss
=11000000+6000000
=17000000
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