Corrpro Companies, Inc., founded in 1984, provides corrosion control–related services, systems, equipment, and materials to the infrastructure, environmental, and energy markets. Corrpro’s products and services include (a) corrosion control engineering services, systems, and equipment, (b) coatings services, and (c) pipeline integrity and risk assessment services. The following information was abridged from the company’s March 31, Year 3, Form 10-K.
Assets and Liabilities Held for Sale In July Year 2, the Company’s Board of Directors approved a formal business restructuring plan. The multi-year plan includes a series of initiatives to improve operating income and reduce debt. The Company intends to sell non-core business units and use the proceeds to reduce debt. The Company has engaged outside professionals to assist in the disposition of the domestic and international non-core business units. Prior to the quarter ended September 30, Year 2, the Company’s non-core domestic and international units were reported as the Other Operations and International Operations reporting segments. Effective for the quarter ended September 30, Year 2, the Other Operations and the International Operations reporting segments have been eliminated and the non-core domestic and international units are reported as Discontinued operations. Prior year financial statements have been reclassified to reflect these non-core units as Discontinued operations, which are also referred to as “assets and liabilities held for sale.”

1. What criteria must be met to warrant reclassifying the noncore business units as discontinued operations effective with the quarter ending September 30, Year 2?
2. Suppose that in March Year 3 a buyer signed a purchase commitment for Corrpro’s Rohrback Cosasco Systems division. This sale requires regulatory approval that is expected to take at least 18 months to obtain. Should Corrpro’s Year 3 financial statements include this division in assets and liabilities held for sale? Explain.
3. Assume that in February Year 3 a potential buyer of another of the domestic noncore business units insisted on a site assessment prior to signing a purchase commitment. The assessment’s purpose was to determine whether the site was environmentally impaired. Unfortunately for Corrpro, trace amounts of a suspected carcinogen were discovered, causing the buyer to terminate the purchase. The buyer is willing to reconsider its decision if the site is remediated. While the site can be remediated using existing technology, doing so will be costly enough to negate the purpose of the sale, which is to raise funds to reduce debt. Management believes that employing new remediation methods currently being tested will make this sale economically feasible and thus places the sale of this business unit on hold. Should Corrpro’s Year 3 financial statements include this division in Assets and liabilities held for sale?
4. Is there any reason for management to prefer discontinued operations treatment for these noncore businessunits?

  • CreatedSeptember 10, 2014
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