Question

Salamander Inc. is a food processing company that operates divisions in three major lines of food products: cereals, frozen fish, and candy. On 13 September 20X1, the Board of Directors voted to put the candy division up for sale. The candy division’s operating results had been declining for the past several years due to intense competition from large international players such as Nestlé and Cadbury.
The Board hired the consulting firm Atelier LLP to conduct a search for potential buyers. The consulting fee was to be 5% of the value of any sale transaction.
By 31 December 20X1, Atelier had found a highly interested buyer for the candy division, and serious negotiations were underway. The potential buyer was a food conglomerate based in Brazil; the company offered to buy the division for $ 4.5 million cash.
On 25 February 20X2, after further negotiations with the potential buyer, the Salamander Board accepted an enhanced Brazilian offer to buy the division for $ 4.7 million. The Salamander shareholders approved the sale on 5 March 20X2. The transfer of ownership took place on 31 March 20X2.
Salamander’s income tax rate is 20%. Other information is as follows ( before tax, in thou-sands of dollars):


Required:
1. Prepare whatever journal entries are appropriate at 13 September 20X1, 31 December 20X1, 25 February 20X2, 5 March 20X2, and 31 March 20X2.
2. Assume that the after- tax earnings from continuing operations amounted to $ 5 million in 20X1. Prepare the lower section of the earnings section of the 20X1 SCI (in thousands ofdollars).


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  • CreatedFebruary 17, 2015
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