On November 30, 2010, Omega, Inc. decided to dispose of a segment (Component A).

Question

On November 30, 2010, Omega, Inc. decided to dispose of a segment (Component A). On December 31, 2010 (the end of Omega's accounting period) the sale had not yet been finalized. During 2010, this component generated operating income of $200,000. The historical cost of Component A is $1,200,000 and the Accumulated Depreciation for Component A on December 31, 2010 was $500,000. At December 31, 2010, the fair value of Component A was estimated at $710,000 and the selling costs related to the sale (commissions, etc.) was estimated to be $50,000. Omega has a 30% tax rate in all years. (a) Determine whether Component A is impaired at December 31,2010. If yes, record the impairment. Date Accounts DebitCredit (b) Prepare the Discontinued Operations Section of the Income Statement FYE 12/31/10.

Explanation / Answer

A. Impairment Loss A/c Dr. $ 40,000 [($ 1,200,000 - $ 500,000) + $ 50,000 - $ 710,000 ]

To Segement of Component A Cr. $ 40,000

B Income Statment FYE 12/31/10 = Opreting Income - Impairement Loss

= $ 200,000 - $ 40,000

= $ 160,000

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