Question: The unaudited income statement and balance sheet of Gourmet Foods

The unaudited income statement and balance sheet of Gourmet Foods Corporation for the years
2012 and 2011 are given below (in $ million):


In 2012, Gourmet Foods sold its meat packing division for $600 million in cash (the decision to sell the unit was made on the same day). On the date of sale, this division had operating assets of $860 million and operating liabilities of $300 million. At the end of 2011, operating assets and liabilities of this division were $821 and $300 million, respectively. The division had no debt. Its operations for 2012 and 2011 were as follows:



The accountant of Gourmet Foods had not made any entries regarding the sale of this division.
The tax accountant opined that 35% of the gain on sale would be taxable.

Required:
a. Gourmet Foods’ auditor decides that the sale of the meat-packing division should be treated as a discontinued operation. Show how the income statement and balance sheet of Gourmet Foods will need to be restated to reflect this change.
b. Assume you were a financial analyst. How would you treat this discontinuedoperation?
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  • CreatedJanuary 22, 2015
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