On September 1, 2020 WayTooBig (WTB) Company decided it would sell off its LargerThanLarge (LTL) division. The division qualifies as a component of the organization. Disposal of the LTL division will result in WTB exiting a particular product market and therefore represents a strategic shift for the company. On September 1 the book value of LTL’s net assets is $15,700,000 and income from continuing operations before tax is $35,000.

1. By December 31 (WTB’s year end), the LTL remains unsold but WTB meets all criteria outlined in the standards for LTL to be considered held for sale. On December 31, the book value of LTL’s net assets is $15,300,000 and income from continuing operations before tax is $54,000. WTB estimates that it will sell LTL some time in 2021 for $14,500,000. WTB’s tax rate is 20% and its income from continuing operations (excluding the results of operations of LTL) is 1,500.000.

1. What will WTB show on its income statement for LTL on December 31, 2020?

2. How would you answer in 1. change if WTB only met some of the criteria for LTL to be considered held for sale?

3. How would you answer in 1. change if WTB estimates that it will sell LTL some time in 2021 for $16,000,000.

4. Instead of 1. above, on December 31, 2020 WTB sells LTL for $14,700,000. What will WTB show on its income statement for LTL on December 31, 2020?

5. How would your answer in 4. above change if WTB sells LTL for $15,500,000?

Answer rating: 100% (QA)

1 WTB will show LTL as a discontinued operation on its income statement ... View the full answer